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Fairplay is using the pure play approach to estimate the beta for a new project in the chemical industry. It has identified ChemPro as a

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Fairplay is using the pure play approach to estimate the beta for a new project in the chemical industry. It has identified ChemPro as a pure play firm and information regarding ChemPro's equity beta and debt-to-equity ratio appear below. Fairplay plans on financing new projects using a target debt-to-equity ratio of 1.0. The risk- free rate is 3% and the market risk premium is 7%. Estimate the cost of equity financing for Fairplay's new project. ChemPro Equity beta Debt-to-equity ratio 1.2 0.8 7.67% 12.33% 7.67% 12.33% 11.40% 16.33%

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