Calculation of individual costs and WACC Carnival Corporation (CCL) recently sold new bonds at discount price of $932.82. The bonds have a short 5-year maturity, have a coupon rate of 8.00%, and pay interestsemi-annually. In addition to the $9.242 billion worth of bonds outstanding, Carnival also has $11.396 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.96. Currently,the expected return on the market portfolio and risk-free rate are, 5.30% and 0.72%, respectively.a. Calculate the market value weights for Carnival's capital structure.b. Calculate Carnival's cost of equity using the CAPM.c. Calculate Carnival's before-tax cost of debt.d. Calculate Carnival's current WACC using a 21% corporate tax rate.

Weighted Average Cost of Capital, is a financial metric used to assess the cost of financing a…

Answered: Calculation of individual costs and…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

Calculation of individual costs and WACC CarnivalCorporation (CCL) recently sold new bonds at discount price of $894.67. The bonds have a short 4-year maturity, have a coupon rate of 10.00%, and pay interest semi-annually. In addition to the $10.185 billion worth of bonds outstanding, Carnival also has $11.801 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.92. Currently, the expected return on the market portfolio and risk-free rate are, 5.30% and 0.65%, respectively. a. Calculate the market value weights for Carnival's capital structure. b. Calculate Carnival's cost of equity using the CAPM. c. Calculate Carnival's before-tax cost of debt.
The ABC Incorporated paid a dividend of Php142.60 per share last year. Yesterday's last price is Php2,300 with the current yield of 6.2%. This problem is an example of _____. a. bonds b. stocks c. stocks and bonds d. neither stocks nor bonds
Golden Finance Ltd is a small investment company. It is looking for financial assets to add to its investment for 2023. As an investment officer of Golden Finance, you are interested in the following assets: • A preferred share issued by Apple Company, which pays a fixed dividend rate of 13%, face value of $100. . • A non-callable bond issued by Orange Company, which pays 9% coupon rate semi-annually, with face value $1000. The bond will mature in 20 years and has a yield to maturity of 8%. The Company Management also requested you to evaluate two mutually exclusive investment portfolios with the following cash flows to recommend one for the next year's investment: Year 2022-Initial Investment Future cash flow 2023 2024 2025 2026 Portfolio A ($) Portfolio B($) 70,000 80,000 25,000 30,000 40,000 45,000 35,000 40,000 50,000 55,000 Required: 1. Compute the current value of Apple Company's preferred share, given the rate of return for the same type of shares in the same industry is 12% 2.…
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 8.6 percent coupon bonds are selling at a price of $984.08. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions. What is the current YTM of the bonds? (Round final answer to 2 decimal places, e.g. 15.25%.) Current YTM for the bonds enter the current YTM of the bonds in percentages rounded to 2 decimal places %
Examine the following book-value balance sheet for University Products Incorporated. The preferred stock currently sells for $15 per share and pays a dividend of $3 a share. The common stock sells for $16 per share and has a beta of 0.9. There are 2 million common shares outstanding. The market risk premium is 9%, the risk-free rate is 5%, and the firm's tax rate is 21%. Assets Cash and short-term securities Accounts receivable Inventories Plant and equipment. Total $2.0 3.0 7.0 21.0 $ 33.0 a. Market debt-to-value ratio b. WACC BOOK VALUE BALANCE SHEET (Figures in $ millions) Liabilities and Net Worth Bonds, coupon = 6%, paid annually (maturity = 10 years, current. yield to maturity = 8%) Preferred stock (par value $15 per share) Common stock (par value $0.20) Additional paid-in stockholders' equity Retained earnings Total a. What is the market debt-to-value ratio of the firm? b. What is University's WACC? Note: For all the requirements, do not round intermediate calculations. Enter…
Plastico, a manufacturer of consumer plastic products, is evaluating its capitalstructure. The balance sheet of the company is as follows (in millions):Assets LiabilitiesFixed assets $4,000 Debt $2,500Current assets $1,000 Equity $2,500In addition, you are provided the following information:• The debt is in the form of long-term bonds, with a coupon rate of 10%. The bondsare currently rated AA and are selling at a yield of 12% (the market value of the bonds is80% of the face value).• The firm currently has 50 million shares outstanding, and the current market priceis $80 per share. The firm pays a dividend of $4 per share and has a price/earnings ratioof 10.• The stock currently has a beta of 1.2. The riskfree rate is 8%.• The tax rate for this firm is 40% Plastico is considering a major change in its capital structure. It has three options:• Option 1: Issue $1 billion in new stock and repurchase half of its…
Plastico, a manufacturer of consumer plastic products, is evaluating its capitalstructure. The balance sheet of the company is as follows (in millions):Assets LiabilitiesFixed assets $4,000 Debt $2,500Current assets $1,000 Equity $2,500In addition, you are provided the following information:• The debt is in the form of long-term bonds, with a coupon rate of 10%. The bondsare currently rated AA and are selling at a yield of 12% (the market value of the bonds is80% of the face value).• The firm currently has 50 million shares outstanding, and the current market priceis $80 per share. The firm pays a dividend of $4 per share and has a price/earnings ratioof 10.• The stock currently has a beta of 1.2. The riskfree rate is 8%.• The tax rate for this firm is 40%.a. What is the debt/equity ratio for this firm in book value terms? In market valueterms?b. What is the debt/(debt + equity) ratio for this firm in book value terms? In marketvalue terms?c. What is the firm’s after-tax cost of debt?
Star Plc is a coffee machines producer. The Star's Plc common stock has a beta of 0.8. The Treasury bill rate is currently 1%, and the market risk premium is estimated at 8%. The book and market values of company's equity are 9,000,000$ (book) and 12,000,000$ (market) respectively. Star's Plc debt amounts to 5,000,000$. The interest rate on debt is 6%. Assume that market value of debt is equal to its book value. The corporation tax rate is 30%. a. What is the company's weighted average cost of capital (WACC)? b. Star Plc is looking into undertaking a new project which has an internal rate of return of 12% and has similar characteristics to the projects currently undertaken by company, should the company accept the project? Briefly justify your answer. c. How would your answer to the part b) change if the potential project has a risk that is significantly different from the risk of the projects currently undertaken by the company? Briefly explain. d. The company Star Plc is evaluating a…
Plastico, a manufacturer of consumer plastic products, is evaluating its capitalstructure. The balance sheet of the company is as follows (in millions):Assets LiabilitiesFixed assets $4,000 Debt $2,500Current assets $1,000 Equity $2,500In addition, you are provided the following information:• The debt is in the form of long-term bonds, with a coupon rate of 10%. The bondsare currently rated AA and are selling at a yield of 12% (the market value of the bonds is80% of the face value).• The firm currently has 50 million shares outstanding, and the current market priceis $80 per share. The firm pays a dividend of $4 per share and has a price/earnings ratioof 10.• The stock currently has a beta of 1.2. The riskfree rate is 8%.• The tax rate for this firm is 40%.a. What is the debt/equity ratio for this firm in book value terms? In market valueterms?b. What is the debt/(debt + equity) ratio for this firm in book value terms? In marketvalue terms?c. What is the firm’s after-tax cost of…
Hexaware Systems Limited uses the market value weights of Debt and Equity for its WACC computation. The firm has issued 1 million bonds and the bonds are currently trading at $255 each. The debt issued by the firm carries AAA rating. The credit spread is 150 basis points of 10-year treasury yield. The 10-year treasury is currently yielding 5.2%. Th firm has 20 million shares outstanding with a current market price of $410 each. The return from DJIA for the period is 12% and the beta of Hexaware is 1.3.
As of June of 2016, Facebook (FB) had no debt. Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2018 (19 months) and using the proceeds to pay a special dividend. FB has 2.31 billion shares outstanding, with a market price (June, 2016) of $116.62. The risk-free rate over this horizon is 0.25%. There is a call option trading on FB with a strike price of $100 and a price of $29.24. What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets? A. 8.89% B. 8.64% C. 19.74% D. Cannot be determined from information given.
You are analyzing the cost of debt for a firm. You know that the firm’s 14-year maturity, 7.4 percent coupon bonds are selling at a price of $769.21. The bonds pay interest semiannually. If these bonds are the only debt outstanding for the firm, answer the following questions.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS