Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta

Question:

Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.53, expects to generate free cash flow of $76 million this year, and anticipates a 4% perpetual growth rate. The industrial chemicals division has an asset beta of 1.14, expects to generate free cash flow of $44 million this year, and anticipates a 2% perpetual growth rate. Suppose the risk-free rate is 2% and the market risk premium is 4%.

a. Estimate the value of each division.

b. Estimate Weston’s current equity beta and cost of capital. Is this cost of capital useful for valuing Weston’s projects? How is Weston’s equity beta likely to change over time?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

Question Posted: