Firms in peer group for analysis
I am unable to understand why A) is incorrect:
Q: An analyst should most likely include two firms in the same peer group for analysis if the firms:
a) are both grouped in the same industry classification
b) are similar in size, industry life-cycle stage and cyclicality
c) derive their revenues and earnings from similar business activities
OA is C. I was thinking that some part of AT&T’s (or say Comcast) revenue and whole part of Cisco’s revenue come from selling hardware boxes. Does it mean that we should include them as peer? No because the answer choice doesn’t say “the primary source of revenue.” However, Industry classification could be a better measure because ATT and Cisco are in different industry classification. However, A) is incorrect. Can someone please explain this to me?
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