Expert answer:FIN571 Phoenix Week 4 Rate of Return for Stocks an

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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 instrum
It allows the student to understand the effects of dividends; capital gains; inflation rates; and how the nominal rate of return a
The assignment also allows the student to apply concepts related to CAPM, WACC and Flotation Costs to understand the in
Resources Required
Corporate Finance
Format of Submission
Students can submit this assignment in Word, using tables and appropriate white space for problem presentation.
If Word is used, you can copy /paste your work from Excel, or create a table.
The memo does not require APA format to the extent of title page or a formal paper, but do use proper business format, sy
Students can submit this assignment in Excel, you can copy/paste your memo from Word to a sheet in Excel as a picture.
Students are to submit just ONE document, in Word or Excel.
In either case, students are to show your work—formulas/inputs/ answer. If you submit in Excel, the formulas can be used to
In Word, you can create an appendix to show formulas and data inputs, and the answer in a table in the body of your memo
Points will be lost if students do not show work, do not present answer. You may earn partial credit for showing your work e
It is recommended that you use Excel to submit your work. But feel free to use the format that best works for you.
Content
Possible Points
Provided an overall summary of how
companies make financial decisions
in no more than 700 words, based on
the answers to the problems below.
30
Problem Calculations
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.
30
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?
30
Met
Partially Met
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?
30
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)?
30
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?
30
Total Available
180
Writing Guidelines
If paper—tables and graphs,
page—are consistent with APA
formatting guidelines and meets
course-level requirements.
If Excel file is used, proper data
formatting and white space is used.
Intellectual property is recognized
with in-text citations and a reference
page.
Total Earned
Met
Partially Met
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
20
Assignment Total
200
Total Earned
e rate of return of equity and debt instruments.
tes; and how the nominal rate of return affects valuation and pricing.
and Flotation Costs to understand the influence of debt and equity on the company’s capital structure.
ce for problem presentation.
r, but do use proper business format, syntax, grammar, spelling, etc.
ord to a sheet in Excel as a picture.
mit in Excel, the formulas can be used to solve in Excel, thus showing your work.
wer in a table in the body of your memo/paper.
n partial credit for showing your work even if you have the wrong answer.
rmat that best works for you.
Not Met
Not Met
Week 4
Return for Stocks and Bonds
a. 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 a
Capital Gains Yield
Dividend Yield
End. Price – Beg. Price
Beg. Price
Dividend Paid
Beg. Price
b. Total Return. You bought a share of 4 percent preferred stock for \$100 last year. The market price for your stock is now \$12
[(Market Price – Initial Price) + Dividend in Dollars]/Initial Price]
c. CAPM. A stock has a beta of 1.20, the expected market rate of return is 12% and the risk-free rate is 5%. What is the expe
Expected Return on a Stock = Risk-Free Rate + [Beta x (Expected Market Rate – Risk-Free Rate)]
d. WACC. The Corporation has a targeted capital structure of 80% common stock and 20% debt. The cost of equity is 12% an
RWACC =
Stockweight
x Rs +
StockWeight + BondWeight
Bondweight
StockWeight + BondWeight
e. Flotation Costs. Medina Corp. has a debt–equity ratio of .75. The company is considering a new plant that will cost \$125 mi
percent. What is the initial cost of the plant if the company raises all equity externally?
[DebtFC x (Debt Equity Ratio)/(1+ Debt Equity Ratio)] + [Equity FC x (1/1+Debt Equity Ratio)]
\$2.00 per share during the year, and had an ending share price of \$125. Compute the percentage total return, capital gains yield, and divide
% Total Return
Dividend Yield
+ Capital Gains Yield
Total Return
he market price for your stock is now \$120. What was your total return for last year?
he risk-free rate is 5%. What is the expected rate of return of the stock?
e – Risk-Free Rate)]
d 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 ca
x RB x
(1-Tc)
+ BondWeight
sidering 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 flota
Debt Equity Ratio)]
l gains yield, and dividend yield.
ghted average cost of capital (WACC)?
t of 10 percent. The flotation cost on new debt is 4

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