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Purpose of Assignment

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The purpose of this assignment is to allow the student an opportunity to calculate the rate of return of equity and debt instruments. It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The assignment also allows the student to apply concepts related to CAPM, WACC, and Flotation Costs to understand the influence of debt and equity on the company’s capital structure.

 

Assignment Steps

Resources: Corporate Finance

Calculate the following problems and provide an overall summary of how companies make financial

decisions in no more than 700 words, based on your answers:

1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.

2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?

3. CAPM: A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?

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4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company’s weighted average cost of capital (WACC)?

5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

Submit your summary and all calculations.

 

Purpose of Assignment

The purpose of this assignment is to allow the student an opportunity to calculate the rate of return of equity and debt instruments. It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The assignment also allows the student to apply concepts related to CAPM, WACC, and Flotation Costs to understand the influence of debt and equity on the company’s capital structure. 

 

Assignment Steps

Resources: Corporate Finance

 

Calculate the following problems and provide an overall summary of how companies make financial

decisions in no more than 700 words, based on your answers: 

  1. Stock Valuation: A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125. Compute the percentage total return, capital gains yield, and dividend yield.
  2. Total Return: You bought a share of 4% preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?
  3. CAPM: A stock has a beta of 1.20, the expected market rate of return is 12%, and a risk-free rate of 5 percent. What is the expected rate of return of the stock?
  4. WACC: The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% and the cost of debt is 7%. The tax rate is 30%. What is the company’s weighted average cost of capital (WACC)?
  5. Flotation Costs: Medina Corp. has a debt-equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10%. The flotation cost on new debt is 4%. What is the initial cost of the plant if the company raises all equity externally?

 

Submit your summary and all calculations.

 

Rate of Return for Stocks and Bonds                                      Grading Guide

 

FIN/571 Version 9

Foundations of Corporate Finance

 

 

Copyright

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Edited in accordance with University of Phoenix® editorial standards and practices.

 

Individual Assignment: Rate of Return for Stocks and Bonds

Purpose of Assignment

The purpose of this assignment is to allow the student an opportunity to calculate the rate of return of equity and debt instruments.  It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return affects valuation and pricing. The assignment also allows the student to apply concepts related to CAPM, WACC and Flotation Costs to understand the influence of debt and equity on the company’s capital structure.

Resources Required

Corporate Finance

Grading Guide

 

Content Met Partially Met Not Met Comments:
Calculated the problems and provided an overall summary of how companies make financial decisions in no more than 700 words, based on the answers.
Stock Valuation.  A stock has an initial price of $100 per share, paid a dividend of $2.00 per share during the year, and had an ending share price of $125.  Compute the percentage total return, capital gains yield, and dividend yield.
Total Return. You bought a share of 4 percent preferred stock for $100 last year. The market price for your stock is now $120. What was your total return for last year?
CAPM.  A stock has a beta of 1.20 the expected market rate of return is 12% and a risk-free rate of 5 percent.  What is the expected rate of return of the stock?
WACC.  The Corporation has a targeted capital structure of 80% common stock and 20% debt.  The cost of equity is 12% and the cost of debt is 7%.  The tax rate is 30%.  What is the company’s weighted average cost of capital (WACC)?
Flotation Costs.  Medina Corp. has a debt–equity ratio of .75. The company is considering a new plant that will cost $125 million to build. When the company issues new equity, it incurs a flotation cost of 10 percent. The flotation cost on new debt is 4 percent. What is the initial cost of the plant if the company raises all equity externally?

 

 

 

 

Total Available Total Earned
5 #/5

 

 

Writing Guidelines Met Partially Met Not Met Comments:
The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements.
Intellectual property is recognized with in-text citations and a reference page.
Paragraph and sentence transitions are present, logical, and maintain the flow throughout the paper.
Sentences are complete, clear, and concise.
Rules of grammar and usage are followed including spelling and punctuation.
Total Available Total Earned
2 #/2

 

 

Assignment Total # 7 #/7
Additional comments:

 

 

 

 

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