question #5

Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.60, expects to generate free cash flow of $50 million this year, and anticipates a 3% perpetual growth rate. The industrial chemicals division has an asset beta of 1.20, expects to generate free cash flow of $70 million this year, and anticipates a 2% perpetual growth rate. Suppose the risk-free rate is 4% and the market risk premium is 5%. 5. Estimate the value of each division. Estimate Weston's current equity beta and cost of capital (remember, the beta of a portfolio is the portfolio of the betas). Is this cost of capital useful for valuing Weston's projects? How is Weston's equity beta likely to change over time? a. b