Reference no: EM133151487
Question - Part A - You are considering the purchase of a common share of Opco Inc. This is a short-term investment, as your investment timeline is 1 year.
Your analysis leads you to conclude the following:
1. The share will sell at $100.00at the end of Year 1;
2. While there is no fixed dividend rate attached to the share, you expect the share will pay a Dividend of $2.5/share at the end of Year 1, and,
Ill. A rate of 6% is a proper discount rate to be utilized in evaluating the share.
Required - Given the above information, how much would you be willing to pay for the share today? (i.e. Day 1 of Year 1).
Part B - JMB 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 -
1. What was the Debt/Equity ratio associated with the financing?
2. What is the proportional weights to be utilized in the calculation of the WACC for the project?
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