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.