$[15$ marks in total$]$ You are trying to value ToysRus, a privately owned toy company. The firm

is expected to report comprehensive income of $1236$ million and net dividends of $936$ million

next period. Going forward, residual income is expected to grow at a constant $3\%$ in perpetuity.

The unlevered beta of toy companies is $0\mathrm{.}90$ and ToysRus has no debt. You have run a

regression of toy companies against fundamentals and have come up with the following:

$PE=4\mathrm{.}73+352\mathrm{.}5(growth$ rate$)-5\mathrm{.}0(Beta)$

$($a$)[5$ marks$]$ Estimate the market value of equity for ToysRus for an initial public offering.

$($b$)[10$ marks$]$ Assume that ToysRus has a P$/$B ratio of $1\mathrm{.}34,$ what's your best estimate for

ToysRus cost of equity capital?