Huston is all equity firm with two divisions. The diary division has an asset beta of 0.46, expects to generate free cash flow of 54 million this year, and anticipate a 4% perpetual growth rate. The cookie division has an asset beta of 0.55 expectes to generate free cash flows of 63 million this year, and anticipates a 2.5 perpetual growth rate. Suppose the risk-free rate is 2% and the market risk premium is 7%. Eestimate the value of each division:
1. The value of the diary division is closest to:
A) 4426.2
B) 1034.5
C) 1800
D) 1255.81
2. The value of the cookie division is closest to:
A) 2400
B) 923.08
C) 1342.33
D) 1880.60
3. Estimate Huston's currently equity beta. Huston's current equity beta is closest to:
A) 0.23
B) 0.45
C) 0.49
D) 0.51
4. Estimate Huston's current cost of capital. Huston's current cost of capital is closest to:
A) 4.14%
B) 4.42%
C) 5.41%
D) 5.57%