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Based on the questions ( and their answers) attached, how cancompanies make financial decisions? I'm looking for an explanation based on some references Questions: Stock
Based on the questions ( and their answers) attached, how cancompanies make financial decisions? I'm looking for an explanation based on some references
Questions: 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 $125. Compute the percentage total return, capital gains yield, and dividend yield. the percentage total return = [$(125 - 100) + $2] / $100 = 27% the capital gains yield = $(125 - 100) / $100 = 25% the dividend yield = $2 / $100 = 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? Total return = (Increase in price of stock + Dividends paid on that stock) / Initial Price Par value of the stock(assumption) = $100 Dividends paid = 4% of 100 = 0.04*100 = $4 Increase in Price of stock = 120 -100 = $20 Initial Price(Given) = $100 Total return = (120-100 + 4)/100 = 24/100 = 0.24 = 24% 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? the expected rate of return of the stock = risk-free rate + Beta (expected market rate of return - risk-free rate ) = 0.05 + 1.20 (0.12 - 0.05) = 0.134 or 13.40% 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 externallyStep by Step Solution
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