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Why do we have to concern ourselves with divisional betas? What are the two techniques that...

Why do we have to concern ourselves with divisional betas? What are the two techniques that can be used to estimate divisional betas?

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Many times the firms have too many distinctive companies that it becomes very complex and challenging to assign during valuation one cost of capital, growth estimate and intercompany comparisons for the firm on the whole while assessing the firm so tend to use divisional betas to find the right beta for the company and its real value which is more accurate being the sum of all of its divisions and also reflects its current business picture than historical.

The two methods which are used to find the divisional betas are :

1. Pure Play method where we use the comparable companies unlever their betas and lever then according to our division's debt we will find the division beta.

2. Using the accounting earnings to estimate the betas.

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