Which method estimates a project's beta by identifying similar publicly traded firms?

The correct choice is the pure play method, which is specifically designed to estimate a project's beta by analyzing firms that have similar risk profiles or operate in the same industry as the project being evaluated. This approach involves identifying publicly traded companies that are focused primarily on the type of business the project pertains to, allowing for a more accurate reflection of the project's systematic risk.

By using the pure play method, analysts can gather beta values from these comparable firms and adjust them to reflect differences in capital structure or operational scale. This results in a project-specific beta that better captures its risk characteristics, as opposed to using a generic market beta that may not account for the unique aspects of the project.

In contrast, the weighted average cost of capital is a broader measure used to calculate a firm's overall cost of capital, incorporating both equity and debt costs without directly focusing on a project's specific risk. The capital asset pricing model, while useful for determining expected returns based on risk, does not itself provide a method for estimating beta through comparison with similar firms. The market comparison method, on the other hand, typically relates to valuing companies or assets through direct market comparisons rather than specifically estimating beta.