Question

The pure play approach:

Select one:

a. Should be used only if a firm has more than three divisions.

b. Involves finding comparison companies that focus on the type of project in which we are interested.

c. Is most useful when each division makes a multitude of different products.

d. Is easier to implement than the subjective approach.

e. Cannot be used if the firm has preferred stock outstanding.

Answer 1

Solution: Involves finding comparison companies that focus on the type of project in which we are interested

Explanation: In pure play approach there is no restriction on the number of divisions a firm should have. Also it depends on the business line a firm is operating, and not considers whether it has preferred outstanding stock or not. It is more difficult in implementation when in a division there are multiple products and in comparison to the subjective approach. The pure play approach is used in finding the capital cost for a division