You Have Been Asked to Estimate the Beta of a High-Technology

You have been asked to estimate the beta of a high-technology firm, which has three divisions with the following characteristics.
$$\begin{array} { l l l } \text { Division } & \text { Beta } & \text { Narket Value } \\\text { Personal Computers } & 1.6 & \$ 100 \text { million } \\\text { Sofware } & 2.00 & \$ 150 \text { million } \\\text { Compute Nainframes } & 1.2 & \$ 250 \text { million }\end{array}$$
a. What is the beta of the equity of the firm?
b. If the risk free return is 5% and the spread between the return on all stocks is 5.5%, estimate the
cost of equity for the software division?
c. What is the cost of equity for the entire firm?
d. Free cash flow to equity investors in the current year (FCFE) for the entire firm is $7.4 million
and for the software division is $3.1 million. If the total firm and the software division are
expected to grow at the same 8% rate into the foreseeable future, estimate the market value of the
firm and of the software division.