Assume your firm has excess cash and is considering

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Assume your firm has excess cash and is considering purchasing a new division. Assume your firm has the management expertise to run this division. Assume the new division is a long-wall mining one where the mining is done predominantly by computer. The cost of the computer is $16.5 million dollars and has a design life of 8 years. It would be used in Montana where your firm already owns the land and the appropriate permits exist. In Montana coal is somewhat depleted, but of high quality and can be burned by power plants nationwide with few toxic emissions. Your firm believes the Green nature of this project will be favorably received by the market and environmentalists. Analysts estimate that Peabody Energy (ticker: BTU), with its levered beta of 2.03 provides an appropriate proxy for the risk of this long wall mining operation.

Your firm's beta is 0.66, Assuming your firm does not change its capital structure, what is the beta of the mining operation for your firm?

Reference no: EM13616183

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