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XYZ Inc., a diversified conglomerate, is deciding whether to buy a copper mine. XYZ already owns some gold mines and has recently invested in the biotech industry. XYZs cost of capital is currently 10%. The following is a list of other companies for which market data are available.

FirmIndustry# shares (in millions)Price/shareDebt (Market value in millions)Equity betaDebt beta

A B Copper C Copper

Gold/Biotech

3 10 15 1 0.2 1 5 1 1.02 0.12 2 20 0 0.8 -

1.5 3 3 1.37 0.15

D a.

b. c.

Copper

Calculate the r D and r E for each firm. Assume the risk-free rate is 7% and the market risk premium (rm-rf) is 8%. Calculate the WACC for each firm. Assume no taxes. What opportunity cost of capital should XYZ use for evaluating whether to buy the copper mine?

2. XYZ Inc., a diversified conglomerate, is deciding whether to buy a copper mine. XYZ already owns some gold mines and has recently invested in the biotech industry. XYZ's cost of capital is currently \10. The following is a list of other companies for which market data are available. a. Calculate the \\( \\mathrm{r}_{\\mathrm{D}} \\) and \\( \\mathrm{r}_{\\mathrm{E}} \\) for each firm. Assume the risk-free rate is \7 and the market risk premium (rm-rf) is \8. b. Calculate the WACC for each firm. Assume no taxes. c. What opportunity cost of capital should XYZ use for evaluating whether to buy the copper mine? 2. XYZ Inc., a diversified conglomerate, is deciding whether to buy a copper mine. XYZ already owns some gold mines and has recently invested in the biotech industry. XYZ's cost of capital is currently \10. The following is a list of other companies for which market data are available. a. Calculate the \\( \\mathrm{r}_{\\mathrm{D}} \\) and \\( \\mathrm{r}_{\\mathrm{E}} \\) for each firm. Assume the risk-free rate is \7 and the market risk premium (rm-rf) is \8. b. Calculate the WACC for each firm. Assume no taxes. c. What opportunity cost of capital should XYZ use for evaluating whether to buy the copper mine

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