Question

When a manager develops a cost of capital for a specific project based on the cost of capitalfor another firm which has a similar line of business as the project, the manager is utilizing the_____ approach.

Answer 1

Answer: When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the pure play approach.

Explanation: Pure play method is an approach to estimate the cost of equity capital of private companies. To do this, members will go in and exam the beta coefficient of different companies to focus on them.