How could smiley reduce its equity cost of capital

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Problem - Smiley plc explores and mines gold and silver in Mexico. The gold production accounts for 55% of the activities of the ?rm, with the rest of the effort involved in silver mining. Other gold mining ?rms have an average beta of 0.8 and a debt to equity ratio of 1(3. Silver mining is less risky and the average beta of silver mining firms is 0.6. However, these companies tend to have more debt, with an average of 112. Smiley has a market capitalization of equity of £11.93 billion and it has no debt. Determine the percentage and monetary expected return on the Smiley's shares if the expected return on the FTSE 100 is 12% and the risk free rate is 3%. How could Smiley reduce its equity cost of capital? Explain, using examples to illustrate your answer.

Reference no: EM132991326

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