Brian Turnbull, the CEO of Admiral Electric, is planning to retire in 4 years and is searching for ways to secure his legacy with the company. Admiral Electric is a large globally diversified conglomerate with operating segments spanning virtually every economic sector. Admiral has never issued any debt and is, thus, financed entirely by equity capital. During his tenure, Turnbull has accumulated a large number of executive stock options that he plans to cash in at his retirement date. The ultimate worth of these options depends, in large part, upon Admirals stock price at the time he retires. Thus, in addition to securing a legacy with the firm, Turnbull has a significant financial interest in seeing the stock price increase over his final 4 years so that he can enjoy a comfortable retirement. Turnbull has asked the heads of his various operating segments to present proposals for short-term (i.e. 4 year) projects that could be undertaken with the expectation of sizeable positive net present values. Following a preliminary review of these proposals, Turnbull has narrowed the list down to the 3 proposals; 1. The development of a new mine for the exploration and extraction of various precious metals in Southwestern Australia. This project would be operated under Admirals global metals and mining operating segment. 2. The development of a new short-range commercial airliner to be marketed to domestic budget airlines carriers. This project would be operated under Admirals Aerospace and Defense division. 3. The development of an advanced 3-D medical imaging device for the detection of early stage cancers. This project would operate under Admirals Healthcare division. Although Admiral operates successfully within these broad economic sectors, Turnbull is unsure of what risk/return expectations would be reasonable for these specific projects. In an effort to get a general idea of the potential rates of return and risks to be expected from investments in these projects, Turnbull instructs his most trusted analyst, Casey Potts, to come up with some estimates of the returns to be expected from investments of this nature. Potts decides to use the pure-play approach to estimating the types of returns that might be expected by these investments. Under the pure-play approach, Potts selects one benchmark company for each of the 3 industries Admiral is evaluating. Each of these 3 benchmarks operates exclusively within its respective industry. He compiles a 10 year history of annual returns produced by these 3 companies. Potts raw data follows; Year Metals and Mining Aerospace Medical Imaging 1 16% 24% 28% 2 14% -6% 26% 3 18% 18% 12% 4 -8% 18% 20% 5 10% -18% 0% 6 -8% 20% -26% 7 -6% -8% 32% 8 22% 18% 10