Question

you used apple as a pure play company to estimate the cost of capital for RCL. Are there any potential problems with this approach in this situation?

Answer 1

Answer:

Given that,

You used Apple as a pure-play company to estimate the cost of capital for RCL. Are there any potential problems with this approach in this situation:

The biggest problem of using Apple as a representative company is that Apple generates its sales almost entirely from its online store, but the company presented in the case might generate its sales using a different source.

The two sources of revenue could have different risk factors that could affect the calculated cost of capital. Another factor that could affect the calculated cost of the capital is that Apple is a public company and it has different access to capital than the company presented in the case, which is a private company.