Reference no: EM131937328

Multi-Foods has two divisions: pet foods and cereal products. Each division contributes 25% and 75%, respectively, to the firm assets. Multi-Foods has found what it feels are good proxies for its divisions in the following competitors below. Multi-Foods is financed 50% by debt and 50% by equity which is also the company’s target capital structure. Each division will be financed with a similar mix of debt and equity.

Pet foods                     Equity beta                  D/(D + E)       

Pet Products                0.50                             0.33

PetCo                          1.50                             0.50

Lucky Cat                    1.75                             0.20

Mrrr Inc                      2.25                             0.25                

Cereal products           Equity beta                  D/(D + E)       

Fruit Loops Co            1.70                             0.40

General Food              0.50                             0.10

Coco Puffs Corp         2.50                             0.50                

Assuming a tax rate of 40% estimate the equity betas of each division.