The pure play method involves finding a company that specializes in the products or services similar to the project being analyzed and then using that company's beta as a proxy for the project's beta. This approach helps in estimating the required rate of return for the project by leveraging the market data of a similar, publicly traded company.

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The Pure Play Method

Question 158

Multiple Choice

The pure play method

A) calculates beta using only project returns.
B) uses the beta of a firm that is similar to the project being analyzed to determine the required rate of return for the project.
C) selects a firm similar to the project being analyzed and uses its returns as the market return in estimating a project beta.
D) selects one of the firm's existing projects that is similar to the project being analyzed and uses that project's required rate of return.

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