Corporate Finance

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.

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