Phoenix Stock Valuation Total Return CAPM Problems Assignment



  1. 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.

    Step 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 $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?

    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. Your outline for your paper should look similar to the following:

    • Intro
    • Stock Valuation
    • Total Return
    • CAPM
    • WACC
    • Flotation Costs
    • Conclusion
    • References

    Each 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 Generator Tool (see link below).

    Minimum required references include your textbook. The textbook reference is as follows:

    Ross, S., Westerfield, R., Jaffe, J. & Jordan, B. (2016). Corporate finance (11th edition). New York, N.Y. McGraw-Hill Education.


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