# Company Financial Decisions

Hello. Attached are two copies of word document. One is the assignment requirements and the other are calculations that I already started on. I was unable to figure out how to calculate the last one. Could you please complete and confirm calculation are right and complete the 700 words about the financial decision. NO PLAGIARISM PLEASE
rate_of_return.docx

calculations_.docx

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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 calcluations.
Click the Assignment Files tab to submit your assignment.
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.
Dividend Yield =
2.00
100
= 0.02
= 2%
Capital gains yield =
125-100
100
= 0.25
= 25%
Total Return = 2% + 25%
= 27%
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?
Total return =
120-100+4
100
= 0.24
= 24%
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?
Expected Return on Stock = 5% + [1.20 * (12% – 5%)]
= .05 + (.084)
= 0.134
= 13.40%
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)?
WACC = (.80 * .12) + (.20 * .07) (1  0.30)
= 0.096 + 0.014 (0.70)
= 0.077
= 7.7%
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?

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