Question 1. (10 MARKS) Diversified Enterprises is a diversified conglomerate with holdings in multiple businesses. You have been asked to estimate the appropriate value to assign to the equity in the firm. The following table summarizes the firm's holdings in different businesses: Business Segment Net Income Book Value of Equity Sector Regression Steel $150 million $1500 million P/BV=0.8 +1.5*(ROE). Financial Services $300 million $2000 million P/BV = 1.3 + 1.0*(ROE) Technology $100 million $500 million P/BV = 3.5+ 2.5*(ROE) Retailing $200 million $1000 million P/BV = 1.75 + 1.8*(ROE) (The ROE should be entered in decimals. Thus, a steel firm with an ROE of 5% would have a P/BV ratio of 0.8 + 1.5*(0.05) = 0.875) There are 400 million shares outstanding. a) Estimate the value of the equity in Diversified Enterprises. (8 marks) b) Now assume that the firm sells its technology division to another firm for $ 2.5 billion. What would you expect to happen to the value per share of equity in Diversified Enterprises? (2 marks) Question 1. (10 MARKS) Diversified Enterprises is a diversified conglomerate with holdings in multiple businesses. You have been asked to estimate the appropriate value to assign to the equity in the firm. The following table summarizes the firm's holdings in different businesses: Business Segment Net Income Book Value of Equity Sector Regression Steel $150 million $1500 million P/BV=0.8 +1.5*(ROE). Financial Services $300 million $2000 million P/BV = 1.3 + 1.0*(ROE) Technology $100 million $500 million P/BV = 3.5+ 2.5*(ROE) Retailing $200 million $1000 million P/BV = 1.75 + 1.8*(ROE) (The ROE should be entered in decimals. Thus, a steel firm with an ROE of 5% would have a P/BV ratio of 0.8 + 1.5*(0.05) = 0.875) There are 400 million shares outstanding. a) Estimate the value of the equity in Diversified Enterprises. (8 marks) b) Now assume that the firm sells its technology division to another firm for $ 2.5 billion. What would you expect to happen to the value per share of equity in Diversified Enterprises? (2 marks)