Which of the following methods involves calculating an average beta for firms in a similar business and then applying that beta to determine the beta of its own project?
A) Sensitivity Analysis
B) Pure play method
C) Accounting beta method
D) Capital asset pricing model (CAPM) method
E) Net present value (NPV) analysis

Question

Quizplus · Accepted Answer

The pure play method involves finding the beta of publicly traded companies that engage in a similar line of business to estimate the beta of the project in question. This method is useful when a firm is planning to invest in a new project or business venture that is not yet in operation.

Which of the Following Methods Involves Calculating an Average Beta