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:
- 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
- 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 calcluations.