Reread the exposition in Chapter 11 of how we obtained tailored discount rates for the three Whitbread plc divisions.

How close do you think our surrogates were?

For another divisionalised company of your choice (try to find a two- or three-division company):

1 Consult the Risk Measurement Service for an up-to-date estimate of the equity Beta, and use the CAPM to assess the shareholders’ required rate of return.

2 Estimate discount rates for each division. You will need to select surrogate companies, record their Betas, and obtain an indication of their own asset Betas by ungearing their equity Betas.

3 Determine whether the weighted average Beta for the company corresponds to its ungeared Beta. You will probably have to use weights based on earnings or sales as very few companies report book values (let alone market values!) of their segments.