Royal Caribbean Cruises - WACC Analysis

Royal Caribbean Cruises (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Royal Caribbean Cruises's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Royal Caribbean Cruises's investment risk. WACC Formula = Cost of Equity (CAPM) * Common Equity + (Cost of Debt) * Total Debt. The result of this calculation is an essential input for the discounted cash flow (DCF) analysis for Royal Caribbean Cruises. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Royal Caribbean Cruises before they make value investing decisions. This WACC analysis is used in Royal Caribbean Cruises's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Royal Caribbean Cruises's company valuation.

WACC Analysis Information

1. The WACC (discount rate) calculation for Royal Caribbean Cruises uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Royal Caribbean Cruises over the long term. If there are any short-term differences between the industry WACC and Royal Caribbean Cruises's WACC (discount rate), then Royal Caribbean Cruises is more likely to revert to the industry WACC (discount rate) over the long term.

2. The WACC calculation uses the higher of Royal Caribbean Cruises's WACC or the risk free rate, because no investment can have a cost of capital that is better than risk free. This situation may occur if the beta is negative and Royal Caribbean Cruises uses a significant proportion of equity capital.