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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
5
1.02
C
2
20
0
0.8
D
1.5
1.37
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