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What opportunity cost of capital should stern alumni use

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Question- Stren Alumni, a diversified conglomerate, is deciding whether to buy a copper mine. Stern Alumni already owns some gold mines and has recently invested in the biotech industry. Stern Alumni's cost of capital is currently 10%. The following is list of other companies for which market data are available. As a simplifying assumption you can set all debt betas equal to zero. What opportunity cost of capital should Stern Alumni use for evaluating? Whether to buy the copper mine? Use a risk free rate of 7% and a market risk premium (rm - rf) of 8%.

Firm

Industry

Shares (in millions)

Price/share

Debt (Book value in millions)

Beta Equity

A

Gold/Biotech

3

10

15

1

B

Copper

1

5

1

1.02

C

Copper

2

20

0

0.8

D

Copper

1.5

3

3

1.37

Reference no: EM13859218

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