Question
Assume a manager determines the cost of capital for a specific project based on the cost of capital at another firm with a line of business that is similar to the project. Accordingly, the manager is using the ________ approach. Multiple Choice divisional cost of capital capital adjustment pure play security market line subjective risk
Answer
pure play
- Q: What is the name of the approach? A: The approach is not named in the question.
- Q: What are the options in the multiple choice question? A: The options are divisional cost of capital, capital adjustment, pure play, security market line, subjective risk.
- A: The answer is 'pure play'. The manager is using the pure play approach to determine the cost of capital for a specific project by looking at the cost of capital at another firm with a similar line of business. This method assumes that the project being evaluated has the same risk profile as the firm being used for comparison.