Single Business Project Risk similar within business

When a firm operates in only one business and all projects within that business share the same risk profile, the firm can use its overall cost of equity as the cost of equity for the project. Since we estimated the cost of equity using a beta for the firm in the last chapter, this would mean that we would use the same beta to estimate the cost of equity for each project that the firm analyzes. The advantage of this approach is that it does not require risk estimation prior to every project, providing managers with a fixed benchmark for their project investments. The approach is restricting, though, since it can be usefully applied only to companies that are in one line of business and take on homogeneous projects.

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