Question on Corporate Finance 2022

Running head: CORPORATE FINANCE
Corporate Finance
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ACCOUNTING THEORY AND APPLICATION
Table of Contents
Question 1:.................................................................................................................................2
a. Analyzing the yearly stock performance of Facebook following its IPO:.............................2
b. Analyzing the holding period return for this investment period:...........................................2
c. Analyzing the possible explanations for the performance of Facebook during the period:...3
Question 2:.................................................................................................................................4
a. Analyzing the leverage ratio of Facebook for each financial years:......................................4
b. Analyzing the capital structure policy of Facebook over this period:...................................4
c. Estimating the yearly cost of equity and cost of capital of Facebook:...................................5
References and Bibliography:....................................................................................................6

ACCOUNTING THEORY AND APPLICATION
Question 1:
a. Analyzing the yearly stock performance of Facebook following its IPO:
Yea
r Average return Annual return
2012 -0.15% -23.77%
2013 0.31% 77.22%
2014 0.17% 41.95%
2015 0.13% 32.25%
2016 0.06% 15.76%
2017 0.17% 42.84%
2018 -0.09% -23.57%
The stock performance of Facebook is relatively evaluated by analyzing the prices of
the shares from 2012 to 2018. The stock performance of the organization is relatively
calculated in the above table, which presents the average returns during the year and the
annual returns. From the analysis, it could be identified that after its initial public offering
Facebook overall share value increased and provided higher returns to the investors, which
gradually declined due to the low changes in share price. The analysis of the table helps in
detecting that the highest yearly returns that was provided by Facebook was in 2013 after
which the annual returns range from 15% to 45% in annual basis. The calculation has mainly
used the Arithmetic Average Returns instead of Compound Annual Returns, as it helps in
detecting the change in share price performance, which can be used by the investors while
making investment decisions (Huang et al. 2015).
b. Analyzing the holding period return for this investment period:
Particulars Value
Bought shares on 18 May 2012 38.23
Sold shares on 28 December
2018 133.20