Part A: You are considering the purchase of a common share of Toys R U Inc. Your investment timeline is 1 year.
Your research leads you to conclude the following:
i. Your RRR of 6% is a proper discount rate to be utilized in evaluating the share.
ii. The share will sell at $100.00 at the end of Year I
iii. You expect the share will pay a fixed Dividend of $2.5/share at the end of Year l, and, Required: Given the above information, how much would you be willing to pay forthe share today? (Le. Day 1 of Year l).
Part B: Bingo Inc. recently financed a capital project with the issuance of ten (10) $1.000 par value Bonds and the issuance of 1,000 shares of equity. The Bonds priced at 96% of par value. The shares were issued for $2.00 each. The yield on the Debt was 12%, and the yield on the shares was 4%. Required:
a) What was the Debt/Equity ratio associated with the financing?
b) What are the proportional weights to be utilized in the calculation of the WACC for the project?