Carnival Corporation (CCL) recently sold new bonds at discount price of $949.44. The bonds have a short 4-year maturity, have a coupon rate of 11.50%, and pay interest semi-annually. In addition to the $9.302 billion worth of bonds outstanding, Carnival also has $12.009 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.95. Currently, the expected return on the market portfolio and risk-free rate are, 6.80% and 0.74%, 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.
Carnival Corporation (CCL) recently sold new bonds at discount price of $949.44. The bonds have a short 4-year maturity, have a coupon rate of 11.50%, and pay interest semi-annually. In addition to the $9.302 billion worth of bonds outstanding, Carnival also has $12.009 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.95. Currently, the expected return on the market portfolio and risk-free rate are, 6.80% and 0.74%, 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.
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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Carnival Corporation (CCL) recently sold new bonds at discount price of $949.44. The bonds have a short 4-year maturity, have a coupon rate of 11.50%, and pay interest semi-annually. In addition to the $9.302 billion worth of bonds outstanding, Carnival also has $12.009 billion worth of common stock equity outstanding. According to Yahoo! Finance, Carnival's stock has a beta of 1.95. Currently, the expected return on the market portfolio and risk-free rate are, 6.80% and 0.74%, 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.
corporate tax rate.
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