1. 2 part assignment 2
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.VERY IMPORTANT – TWO
SUBMISSIONS ARE REQUIRED FOR THIS ASSIGNMENTSTEP 1 – (Submit as an Excel
spreadsheet)Calculate the following problems using Microsoft Excel. The calculations must
be done in Excel. You must show your work. If you submit these in Word, you will not
receive credit. If you do not show your work, you will not receive credit. Examples are
provided above for review prior to starting this assignment. FOLLOW MY EXAMPLES!1.
Stock Valuation: A stock has an initial price of $125 per share, paid a dividend of $2.00 per
share during the year, and had an ending share price of $180. Compute the percentage total
return, capital gains yield, and dividend yield.2. Total Return: You bought a share of 10%
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 20%, 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 10% and the cost of debt is 5%. 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 $525
million to build. When the company issues new equity, it incurs a flotation cost of 15%. The
flotation cost on new debt is 8%. What is the initial cost of the plant if the company raises all
equity externally?STEP 2 – (Submit as a WORD document in APA format)Provide an overall
summary of how companies make financial decisions based on Stock Valuation, Total
Return, CAPM, WACC and Flotation Costs. This is a general discussion on these terms. Do
not include your calculations within the discussion. Your outline for your paper should look
similar to the following:IntroStock ValuationTotal ReturnCAPMWACCFlotation
CostsConclusionReferencesEach point above should be a paragraph containing 4-5
sentences, with the exception of the references page. There are required references for each
assignment. Those are given to you below. So, all you need to do is copy, paste and then
proceed to double-space, alphabetize and format into a hanging indent. You should not need
to use other references. But if you do, format those using the Reference and Citation
2. Generator Tool (see link below).Minimum required references include your textbook (see
below).Ross, S., Westerfield, R., Jaffe, J. & Jordan, B. (2016). Corporate finance (11th edition).
New York, N.Y. McGraw-Hill Education.
