Fresnillo plc explores and mines gold and silver. The gold production accounts for 50 per cent of the activities of the firm, with the rest of the effort involved in silver mining. Other gold-mining firms have an average beta of 0.9 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 debt-to-equity ratio of 1/2. Fresnillo has a market capitalization of equity of 12 billion and it has no debt. Determine the expected return on Fresnillos shares if the expected return on the FTSE 100 is 11 per cent and the risk free rate is 2 per cent. [8 marks]

b. Discuss the primary determinants of beta and how they can be measured. In Fresnillos case, what do you think will be the most important determinant? Explain. [12 marks]

c. How could Fresnillo reduce its equity cost of capital? Explain, using examples to illustrate your answer.