XYZ Inc. is a small firm currently operating in Ohio and is planning a new project

in Illinois. The CEO of the firm gathered the following data to estimate the

projects cost of capital:

Comparable Public Firm XYZ Inc.s

Project

Market value of debt $220 m $82 m

Market value of equity $340 m $145 m

Marginal tax rate 36% 34%

Beta 1.7

The asset beta of XYZ Inc. is closest to:

A. 1.20.

B. 1.65.

C. 2.33.

D. 1.50