CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

Which of the following statements is false?

A. In the pure play method, a company finds several firms in the same line of business as the project being evaluated; it then averages those companies' betas to determine the cost of capital.
B. The pure play approach can only be used to evaluate major assets such as whole divisions.
C. The pure play approach can only be used to evaluate small assets.
D. The pure play approach is a technique used to measure the beta risk of investment projects.
Correct Answer: C

The pure play method requires that the company find firms in the same line of business as the project being evaluated; this is virtually impossible for small assets.

User Contributed Comments 2

User Comment
thecfaguy What about A. It's not talking about unlevering and relevering.... or will a simple average of the betas work fine ?
johntan1979 Yes, if it is asset beta. No need to unlever-relever
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