FIN 571 Assignment Rate of Return for Stocks and Bonds

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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. 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. 3. 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? 4. 5.3) 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? 6.7. 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)? 8. 9. 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? 10. Secondly: he
purpose of this assignment is to allow the student an opportunity to
explain what it means to have an efficient capital market. Students
will gain an understanding of the different levels of market
efficiency and how behavioral finance can inhibit reaching market
transparency. Assignment Steps Resources: Microsoft Word
Explain in 525 words what it means to have efficient capital
market, including: Describe the behavioral challenges in
achieving efficiency. Discuss the three forms of market
efficiency. What are the implications to corporate
finance? Would you consider the real estate market an
efficient capital market? Please explain why or why not.