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Question - Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.56, expects to generate free cash flow of $70 million this year, and anticipates a 4% perpetual growth rate. The industrial chemicals division has an asset beta of 1.19, expects to generate free cash flow of $51 million this year, and anticipates a 3% perpetual growth rate. Suppose the risk-free rate is 2% and the market risk premium is 5%.
a. Estimate the value of each division.
b. Estimate Weston's current equity beta.
c. Estimate Weston's current cost of capital. Is this cost of capital useful for valuing? Weston's project.
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