Farmer's Supply,Inc.is considering opening a clothing store,which would be a new line of business for the firm.Management has decided to use the cost of capital of a similar clothing store as the discount rate that should be used to evaluate this proposed expansion.Which one of the following terms is used to describe the approach Farmer's Supply is taking to establish an appropriate discount rate for the project?

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Farmer's Supply is using the cost of capital of a similar clothing store to establish an appropriate discount rate for the project. This approach is known as the pure play approach, where the firm relies on the cost of capital of a comparable firm in the same line of business to evaluate its own proposed expansion project. This approach is commonly used when a company enters a new line of business or industry where it has limited experience but wants to estimate the appropriate discount rate for the project.