Rate Of Return For Stocks And Bonds Performance Of Mergers And Acquisitions

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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

Purpose of Assignment

Corporate Finance

Grading Guide

Content

Met

Partially Met

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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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Explanation & Answer

Please let me know if there is anything needs to be changed or added. I will be also appreciated that you can let me know if there is any problem or you have not received the work. Please let me know if there is anything needs to be changed or added. I will be also appreciated that you can let me know if there is any problem or you have not received the work Good luck in your study and if you need any further help in your assignments, please let me know Can you please confirm if you have received the work? Once again, thanks for allowing me to help you R

rate of return and stocks
by HAL Lab

Submission date: 30-Mar-2019 11:29AM (UT C-0400)
Submission ID: 1090870601
File name: rate_of _return_and_stocks.edited.docx (33.49K)
Word count: 709
Character count: 4217

rate of return and stocks
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Running head: RATE OF RETURN AND STOCKS

Rate of Return and Stocks
Name
Course
Date

1

RATE OF RETURN AND STOCKS

2

Rate of Return and Stocks
Summary
An investor will need first to evaluate the expected return he may obtain from his
investment on a particular company, as such return will determine if he invests on the company
or searches for an alternative investment option. In this sense, it is important to note how the
investor has two primary goals for his investment: obtain a high return and have a relatively low
risk. Thus, if the investor perceives that the investment on the company will not provide him
with the necessary performance or he finds alternative options that offer similar returns at a
l...


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