Solved by verified expert: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. Format of SubmissionStudents 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, syntax, grammar, spelling, etc.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,Points will be lost if students do not show work, do not present answer. You may earn partial credit for showing your work even if you have the wrong answer.It is recommended that you use Excel to submit your work. But feel free to use the format that best works for you.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 as one file.

w4_rubric_rate_of_return_for_stocks_and_bonds.xlsx

getting_started_w4_assignment_return_for_stocks_and_bonds_formulas.xlsx

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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.

Grading Guide

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,

headings, title page, and reference

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

Additional comments:

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

Comments:

Not Met

Comments:

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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