Chapter 12-Web Appendix 12D Solutions

Chapter 12-Web Appendix 12D Solutions - WebAppendix12D

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Web Appendix 12D Techniques for Measuring Beta Risk Answers to Questions 12D-1 Estimating project betas is even more difficult, and more fraught with uncertainty, than estimating  betas for stock.  The pure play method would be used in a situation when the firm is considering a  major investment outside its primary field, and it can identify several companies whose only  business is to produce the product in question.  However, it may be impossible to find single- product, publicly traded firms.  In this situation, to the extent management thinks a given project is  similar to other projects the firm has undertaken in the past, some other project’s accounting beta  can be used as a proxy for that of the project in question. 12D-2 The pure play approach can only be used for major assets such as whole divisions, and even then  it is frequently difficult to implement because it is often impossible to find pure-play proxy firms.  In 
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Chapter 12-Web Appendix 12D Solutions - WebAppendix12D

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