Answered

At Westonci.ca, we make it easy for you to get the answers you need from a community of knowledgeable individuals. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.

In 2018, Caterpillar Inc. had about 595 million shares outstanding. Their book value was $23.00 per share, and the market price was $154.80 per share. The company's balance sheet shows that the company had $24.8 billion of long-term debt, which was currently selling near par value.
a. What was Caterpillar's book debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.)
b. What was its market debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.)
c. Which measure should you use to calculate the company's cost of capital?
a. Book debt-to-value ratio
b. Markeet debt-to-value ratio
c. Measure

Sagot :

Answer and Explanation:

The computation is shown below;

(a)-Caterpillar’s book debt-to-value ratio

Caterpillar’s book debt-to-value ratio is

= Debt ÷ [Debt + Book Value of Equity]

= $24.80 Billion ÷ [$24.80 Billion + (0.595 Billion Shares × $23.00 per share)]

= $24.80 Billion ÷  [$24.80 Billion + $13.69 Billion]

= $24.80 Billion ÷ $38.49 Billion

= 0.64

(b)- Caterpillar’s market debt-to-value ratio

Caterpillar’s book Market debt-to-value ratio is

= Debt ÷ [Debt + Market Value of Equity]

= $24.80 Billion ÷ [$24.80 Billion + (0.595 Billion Shares × $154.80 per share)]

= $24.80 Billion ÷ [$24.80 Billion + $92.11 Billion]

= $24.80 Billion ÷ $116.91 Billion

= 0.21

(c)-Best measure to determine the company’s cost of capital is the market value  

We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. Thank you for choosing Westonci.ca as your information source. We look forward to your next visit.