The pure play approach involves estimating betas and the risk associated with an investment and the optimal financing by estimating the weighted average cost of capital of companies in an industry associated with the project.

Question

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The pure play approach involves estimating the beta (a measure of risk) for a project by looking at comparable companies (pure plays) in the same industry. This method helps in assessing the risk and the optimal financing mix by estimating the weighted average cost of capital (WACC) of these companies, which can then be applied to the project in question.

The Pure Play Approach Involves Estimating Betas and the Risk