Pacific Coast Fishing and Camping Stores Pty Ltd is considering opening a clothing store,which would be a new line of business for the company.Management has decided to use the cost of capital of a similar clothing store as the discount rate that should be used to evaluate this proposed expansion.Which one of the following terms is used to describe the approach Pacific Coast is taking to establish an appropriate discount rate for the project?

Question

Quizplus · Accepted Answer

Pacific Coast is using the pure play approach to establish an appropriate discount rate for the new clothing store. This approach involves identifying similar companies that operate in the same line of business and using their cost of capital as a benchmark for evaluating the new project.

Pacific Coast Fishing and Camping Stores Pty Ltd Is Considering