In using the ___________ approach to estimating the cost of capital for a division, an analyst proceeds by observing the returns for a firm whose operations are in the same risk class as the division.

Question

Quizplus · Accepted Answer

The Pure Play approach involves estimating the cost of capital for a division by observing the returns of firms that are exclusively engaged in similar lines of business, thus sharing the same risk class. This method is preferred for its direct comparison with companies of similar risk profiles.

In Using the ___________ Approach to Estimating the Cost of Capital