When a manager develops a cost of capital for a specific project based on the cost of capital for another firm that has a similar line of business as the project, the manager is utilizing the ________ approach.
A) subjective risk
B) pure play
C) divisional cost of capital
D) capital adjustment
E) security market line

Question

Quizplus · Accepted Answer

The pure play approach involves developing a cost of capital based on a firm that is solely engaged in the same line of business as the project being considered. This approach is commonly used when there is not enough information available to calculate a cost of capital using other methods.

When a Manager Develops a Cost of Capital for a Specific