# Rate of Return for Stocks and Bonds- Corporate Finance

Calculate the following problems in excel and provide an overall summary of how companies make financial decisions in no more than 700 words, based on your answers:

• 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.
• 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?
• 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?
• 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)?
• 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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