Calculation of individual costs and WACC Carnival Corporation (CCL) recently sold new bonds at discount price of $943.69. The bonds have a short 6-year maturity, have a coupon rate of 8.50%, andpay interest semi-annually. In addition to the $9.265 billion worth of bonds outstanding, Carnival also has $11.718 billion worth of common stock equity outstanding. According to Yahoo!Finance, Carnival's stock has a beta of 1.77. Currently, the expected return on the market portfolio and risk-free rate are, 5.90% and 0.64%, 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.

WACC refers to weighted average cost of capital. It is the blended cost of capital. It is known that…

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

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Sapp Trucking's balance sheet shows a total of noncallable $35 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $45 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $29.00 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.78% b. 2.04% c. 2.42% d. 1.15% e. 1.53%
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.26 %. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $55 million. The current stock price is $20 per share; stockholders' required return, rs, is 21.83 % ; and the firm's tax rate is 40%. The CFO thinks the WACC should be based on market value weights, but the idiot president thinks book weights are more appropriate. What is the difference between these two WACCS?
This question is not incomplete. you need to calculate the cost of equity. I need Answer for the question number d and e. thanks Blooming Ltd. currently has the following capital structure:Debt: $2,500,000 par value of outstanding bond that pays annually 12% coupon rate with an annual before-tax yield to maturity of 10%. The bond issue has face value of $1,000 and will mature in 25 years.Ordinary shares: 65,000 outstanding ordinary shares. The firm plans to pay a $7.50 dividend per share in the next financial year. The firm is maintaining 3% annual growth rate in dividend, which is expected to continue indefinitely.Preferred shares: 40 000 outstanding preferred shares with face value of $100, paying fixed dividend rate of 14%.Company tax rate is 30% Required: Complete the following tasks:a) Calculate the current price of the corporate bond? b) Calculate the current price of the ordinary share if the average return of the shares in the same industry is 9%? c) Calculate the current value…
Sapp Trucking's balance sheet shows a total of noncallable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $24.50 per share; stockholders' required return, rs, is 14.00%; and the firm's tax rate is 25%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between these two WACCs? a. 1.92% b. 2.28% c. 1.08% d. 1.68% e. 1.44%
Steve's Specialties, Inc. paid its dividend yesterday, which as $3.00. The dividend has been growing at a rate of 0.035 and is expected to continue indefinitely at that rate. Steve's common stock is currently trading at 24.00 per share. The firms beta is 0.88. Treasuries (T-bills) are currently yielding 0.030, Average return on the market is 0.10. Using the DCF approcah, what is steves cost of retained earnings?
ABC Trucking's balance sheet shows a total of noncallable $30 million long-term debt with a coupon rate of 6.80% and a yield to maturity of 8.10%. This debt currently has a market value of $48 million. The balance sheet also shows that the company has 10 million shares of common stock, and the book value of the common equity is $213.00 million. The current stock price is $23.80 per share; stockholders' required return, rs, is 15.05%; and the firm's tax rate is 36.00%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between the WACCs using market value and the book value?Work with at least 4 decimals and round your final answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72. Group of answer choices –0.46% –0.49% –0.44% –0.34% –0.36%
5. You're the CFO of Pathao Foods. The company has 210,000 shares outstanding which are currently trading in market for BDT 36. The company's past dividend payments are given below: 2015 2016 2017 2018 2019 2020 BDT 5.3 BDT 5.8 BDT 6.5 BDT 5 BDT 6.2 BDT 6.5 Pathao Food also has 6,000 bonds outstanding. The bonds carry a 7 % coupon, pay coupon annually, and matures in 10 years. The bonds are selling at 95% of face value. Pathao Food is evaluating a project to buy 5 freezing vans to expand it's existing food delivery business. This project would enable the company to generate yearly revenue of BDT 10 million and incur yearly operating cost of BDT 6 million. The project will have 5 years life and would require an investment of BDT 1.5 million for each freezing van. The total registration cost of the freezing vans would be BDT 500,000. These vans will be depreciated using 3 years MACRS and can be scraped for BDT 1 million after the useful life is over. The average tax rate is 35%.…
Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 1.02. Paul estimated that the market return is 6.48%. The current rate for 10-year Treasury Bonds is 2.95%. Calculate cost of common equity financing using CAPM -- SML formula
XYZ Banks Inc. is a short-term lender. XYZ is all equity financed. XYZ has 20 million shares outstanding which trade for P7 per share. XYZ's shareholders require a return of 9%. Cash-Mart Financial is also a short-term lender. It's shares are trading for P15 per share. Cash-Mart has 10 million shares outstanding. Cash-Mart's corporate bonds are rated BB and are trading for 87.5% of face value to yield 7%. The face value of Cash-Mart's debt is P100 million. What is the required return of Cash-Mart's shareholders? (Assume that the tax rate is 0%.)
Calculate the weighted average cost of capital for the following Dunkie company (WACC). The Dunkie company's bond is currently selling for 102% of par. The bond is a semi-annual, 20-year bond issued 7 years ago with a face value of $1000.00 with a coupon of 8%. There were 95,000 bonds issued. The company's corporate tax rate is 32%. The Dunkie company has issued both preferred and common stock. The preferred stock pays $3.35 per share and is selling for $97.00. There are 100,000 shares of preferred stock. The company has a beta of .95. You've calculated the return of the market to be 9.5% and the market risk premium is 5.75%. The Dunkie company stock is selling for $15.75 and there are 5,000,000 shares outstanding. What is the weighted average cost of capital for the Dunkie company?
McCann Catching, Inc. has 3.00 million shares of stock outstanding. The stock currently sells for $12.79 per share. The firm's debt is publicly traded and was recently quoted at 89.00% of face value. It has a total face value of $19.00 million, and it is currently priced to yield 10.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.20. The corporate tax rate is 34.00%. The firm is considering a $45.89 million expansion of their production facility. The project has the same risk as the firm overall and will earn $11.00 million per year for 7.00 years. What is the NPV of the expansion? (answer in terms of millions, so 1,000,000 would be 1.0000)
Q2: NCH, which markets cleaning chemicals, insecticides, and other products, paid dividends of $2.00 per share on earnings of $4.00 per share. The book value of equity per share was @40.00 and earnings are expected to grow 5% a year in the long term. The stock has a beta of 0.85 and sells for $60 per share. The treasury bond rate is 7%. A. BAsed on these inputs, estimate the price/book value ratio for NCH. B. How much would the return on equity have to increase to justify the price/book value ratio at which NCH sells for currently.

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