Name- Muskan Raghuwanshi

Roll no. - PGFA2031

a. Division Beta Market Value Weights
Personal Computers 1.6 100 20%
Software 2 150 30%
Computer Mainframes 1.2 250 50%
Company 500 100%

b. Cost of Equity of Software Division

Risk free Rate of Return 5%
Spread between the return on all stocks 5.50%

Cost of Equity of Software Division 16.00%

c. Cost of Equity of entire company

Risk free Rate of Return 5%
Spread between the return on all stocks 5.50%

Cost of Equity of entire company 13.36%

d. Market Value of Total Firm and Software Division

FCFE for entire firm $ 7.40 million
FCFE for software division $ 3.10 million
Growth Rate 8%

Market Value of Total Firm $ 149.10 million

Market Value of Software Division $ 41.85 million

e.
Weighted Beta
0.32
0.6
0.6
1.52
Divestitures is the complete or partial liquidation of a business unit by sale, exchange, closure, o
part of the company's core competencies. It also lets in organisations to reduce costs consciousn
Pros:
Values & transparency: It offers additional transparency in businesses with massive and diversifie
streamlined focus, freed assets and coins acquired all assist pressure a better usual price for the
Strategic Focus: Company divest assets and businesses units that do not fit with the company co
Cons:
Contractual obligations: Partner agreements, support agreements, and vendor agreements may
business or to remove the link.
 
equity carve-outs:It is a half sale of a business unit in which the parent company sells a minor sta
company and its own company. The new organization consists of its own board of directors and fi
strategic support and resources to help your new business succeed.This helps the parent compan
companies to strategically diversify into other activities that may not be their core business.
Pros:
Control of the subsidiary remains with the parent company after the capital allocation. Only a po
competitor may enter the business or obtain a significant interest or control of the business, affe
 
 
 
 
 
 
 
 
 
 
Cons:
The different management teams of the two companies can create disadvantages due to differen
organizations.
Spin-off: When a organization creates a brand new unbiased organization via way of means of pr
is a kind of divestiture. A organization creates a by-product waiting for that it is going to be really
Pros:
Risk, Profitability and Debt : If a division in which a company business operates increases the ove
Cons:
Cost increase : The split costs are borne by Parent Ltd. This includes legal obligations and other se
 
Some of the distinguishing features that allows senior management to prefer divestment are g
Spinoff is the process of transferring some shares of an existing company to create a new one w
purpose of a spinoff is to focus on a strong division for more profit, while the purpose of a divest
organizations.
Spin-off: When a organization creates a brand new unbiased organization via way of means of pr
is a kind of divestiture. A organization creates a by-product waiting for that it is going to be really
Pros:
Risk, Profitability and Debt : If a division in which a company business operates increases the ove
Cons:
Cost increase : The split costs are borne by Parent Ltd. This includes legal obligations and other se
 
Some of the distinguishing features that allows senior management to prefer divestment are g
Spinoff is the process of transferring some shares of an existing company to create a new one w
purpose of a spinoff is to focus on a strong division for more profit, while the purpose of a divest
Spin off acquires the management structure and other intellectual property of the existing comp
assets are to be used after the sale.
. An example of a spin off includes eBay creating a PayPal spin off. Example of divestiture include
Equity Carveout is chosen above spin-offs when the parent company looks for an opportunity to
control. Therefore, the parent company chooses CarveOut by offering a portion of its shares thro
this type of divestment, businesses outside the industry are separated/sold from the parent com
subsidiary from 50 to 100%. The parent company sells shares of the subsidiary to the public or t
resolved based on the progress of the enterprise and the status of the main business activities o
perform well, it can hinder the growth of the core business. As a result, companies find it impera
 t by sale, exchange, closure, or bankruptcy. It results from management's decision to discontinue a business unit because it is not
ons to reduce costs consciousness on their middle businesses, , pay off their debts,and decorate shareholder value.

ses with massive and diversified companies and activities .The usual advantage of divesting is the growth in price that results. The
re a better usual price for the ultimate company.
o not fit with the company core business. Therefore it allow companies maintain their strategic focus.

and vendor agreements may contain references to businesses sold. These agreements must be amended to proceed with the sold

rent company sells a minor stake in a subsidiary to other investors. a company strategically splits its subsidiaries into a parent
s own board of directors and financial statements. It usually retains a controlling interest in the new company. It also provides
d.This helps the parent company retain its majority stake while retaining control over its subsidiaries. Equity CarveOut allows
ot be their core business.

he capital allocation. Only a portion of the capital is transferred to the new pool of investors. Therefore, there is no threat that a
or control of the business, affecting the interests of the parent company.

disadvantages due to differences in management styles and operations. There may be a lack of coordination in the work of the two

ization via way of means of promoting or dispensing new stocks of its present business, that is known as a by-product. A by-product
for that it is going to be really well worth extra as an unbiased entity. A by-product is likewise referred to as a spinout or starburst.

ess operates increases the overall risk, the board may decide to spin off that division.

s legal obligations and other setup fees.

ent to prefer divestment are given below:
ompany to create a new one while divestment is the process dispose of some company assets for a number of reasons. The
while the purpose of a divestment is to pay off debt, get cash, and focus on a few key product lines.
 ization via way of means of promoting or dispensing new stocks of its present business, that is known as a by-product. A by-product
for that it is going to be really well worth extra as an unbiased entity. A by-product is likewise referred to as a spinout or starburst.

ess operates increases the overall risk, the board may decide to spin off that division.

s legal obligations and other setup fees.

ent to prefer divestment are given below:
ompany to create a new one while divestment is the process dispose of some company assets for a number of reasons. The
while the purpose of a divestment is to pay off debt, get cash, and focus on a few key product lines.
property of the existing company while in the case of divestment, the company does not intervene in matters related to how the

Example of divestiture includes Thomson Reuters selling its property to reduce costs.
any looks for an opportunity to “sell” a subsidiary either by selling all of it or by selling shares in the subsidiary without giving up full
ing a portion of its shares through an IPO. If a promoter has such goals, exclusion is the appropriate alternative to choose from. In
ated/sold from the parent company, leading to more and more M&A activities. Generally, a parent company owns the shares of a
he subsidiary to the public or to existing shareholders for restructuring. Therefore, the problem of splitting or dispersing can only be
the main business activities of the enterprise. First, you should focus on your core business. If a business unit or asset does not
esult, companies find it imperative to sell non-synergistic activities.
unit because it is not
value.

rice that results. The

proceed with the sold

ies into a parent

y. It also provides
arveOut allows

e is no threat that a

n in the work of the two

y-product. A by-product
a spinout or starburst.

of reasons. The
y-product. A by-product
a spinout or starburst.

of reasons. The

ers related to how the

y without giving up full

ve to choose from. In
owns the shares of a
r dispersing can only be
it or asset does not