When trying to estimate the cost of equity for a firm using the CAPM, it is possible to find the beta of a comparable, publicly traded firm whose primary business is closely related to the firm at hand.

Question

Quizplus · Accepted Answer

By finding the beta of a comparable publicly traded firm whose primary business is closely related to the firm at hand, one can estimate the cost of equity using the CAPM formula. This is called the "pure play" method.

When Trying to Estimate the Cost of Equity for a Firm