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Purpose of AssignmentThe 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 StepsCalculate the following problems and provide an overall summary of how companies make financial decisions in no more than 700 words, based on your 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% 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%. 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.
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Rate of Return for Stocks and Bonds
Grading Guide
FIN/571 Version 9
Foundations of Corporate Finance
Copyright
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to imply endorsement, sponsorship, or affiliation.
Edited in accordance with University of Phoenix® editorial standards and practices.
Rate of Return for Stocks and
Bonds
Grading Guide
FIN571 Version 9
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
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
Met
Partially
Met
Not Met
Comments:
2
Rate of Return for Stocks and
Bonds
Grading Guide
FIN571 Version 9
Content
Met
Partially
Met
Not Met
Total
Available
Total
Earned
85
#/85
Partially
Met
Not Met
Total
Available
Total
Earned
35
#/35
120
#/120
Comments:
the company raises all equity externally?
Writing Guidelines
Met
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.
Assignment Total
Additional comments:
#
Comments:
3
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