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  3. companies a and b are both pure play, 100% equity

Companies A and B are both pure play, 100% equity firms in different industries. A...

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Finance

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Companies A and B are both pure play, 100% equity firms in different industries. A is a biotech company with a WACC of 16 % , while B is a retail chain of drugstores with a WACC of 10 %. Assume that each company is typical for its industry, and that its WACC reflects the underlying risk of that industry. B is thinking of making an investment in biotech. In analyzing this new project, which will be typical for blotech, what discount rate should B (the drugstore chain) use? OA. B's new, future WACC after the biotech project has been accepted (taking into account the new project's value). O B. B's current WACC, 10 % . O C. A's current WACC, 16%. O D. 13% (halfway between the two current WACCS)

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