Homework SourseWhich of the following is a limitation of using a pure play
Which of the following is a limitation of using a pure play and the CAPM to estimate the cost of capital for a small business?
| A | Small businesses are typically less diversified than large companies. |
Solution
Answer E: Answers a,b, and c are correct
Reason: Small businesses are less diversified meaning they have a single arm of business, the shareholding patterns is limited to mostly owners and calculation of beta becomes difficult and the business may be less liquid
