When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project,the manager is utilizing the _____ approach.
A)subjective risk
B)pure play
C)divisional cost of capital
D)capital adjustment
E)security market line

Question

Quizplus · Accepted Answer

The manager is utilizing the pure play approach, which involves using the cost of capital of a publicly traded company in a similar line of business as the project to develop a cost of capital for the project. This approach is often used when there is not enough information available to develop a cost of capital based on the company's own financial data or when the project is in a new or unique line of business.

When a Manager Develops a Cost of Capital for a Specific