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.

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Finding the beta of a comparable, publicly traded firm can be a useful approach to estimating the cost of equity for a firm using the CAPM. This is because beta is a measure of the systematic risk or volatility of a stock or portfolio relative to the market as a whole, and similar firms operating in the same industry or market sector may have similar levels of risk. However, it is important to ensure that the comparable firm is truly similar to the firm in question in terms of its business operations, market position, financial structure, and other factors that can affect risk and return. In addition, adjustments may need to be made to account for any differences in size, growth prospects, debt-to-equity ratios, and other relevant factors.

When Trying to Estimate the Cost of Equity for a Firm