Alto Music is a levered company providing musical instruments and supplies through its retail outlets.The company is considering expanding into art supplies.Since this is an entirely new venture,the company should

Question

Quizplus · Accepted Answer

Since the expansion into art supplies is an entirely new venture, using the current company beta or cost of equity may not accurately reflect the risk associated with the project. Using the market beta may not capture the specific risks associated with the art supplies industry. Therefore, the pure play approach would be the best choice, which involves finding publicly-traded companies solely in the art supplies industry and using their beta to determine the required return for the project.

Alto Music Is a Levered Company Providing Musical Instruments and Supplies