FIN 571 Week Four Rate of Return for Stocks and Bond

User Generated

UNZOBAR707

Business Finance

Description

FIN 571 WEEK FOUR INDIVIDUAL

Rate of Return for Stocks and Bonds

oDue Feb 09, 6:00PM (PST)

oNot Submitted

oPOINTS 7

Summary

Objectives:

4.3

4.4

Instructions

Assignment Files

Grading

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.

Unformatted Attachment Preview

Rate of Return for Stocks and Bonds Grading Guide FIN/571 Version 9 Foundations of Corporate Finance Copyright Copyright © 2017, 2016, 2013 by University of Phoenix. All rights reserved. University of Phoenix® is a registered trademark of Apollo Group, Inc. in the United States and/or other countries. Microsoft®, Windows®, and Windows NT® are registered trademarks of Microsoft Corporation in the United States and/or other countries. All other company and product names are trademarks or registered trademarks of their respective companies. Use of these marks is not intended 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 5 #/5 Partially Met Not Met Total Available Total Earned 2 #/2 7 #/7 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
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

In ...


Anonymous
Awesome! Perfect study aid.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags