In 2013 Caterpillar Inc. had about 654 million shares outstanding. Their book va

Question

In 2013 Caterpillar Inc. had about 654 million shares outstanding. Their book value was $33 per share, and the market price was $86.50 per share. The company’s balance sheet shows that the company had $19.7 billion of long-term debt, which was currently selling near par value.

What was Caterpillar’s book debt-to-value ratio? (Enter your answer as a decimal rounded to 2 decimal places. Do not round intermediate calculations.)

What was its market debt-to-value ratio? (Enter your answer as a decimal rounded to 2 decimal places. Do not round intermediate calculations.)

In 2013 Caterpillar Inc. had about 654 million shares outstanding. Their book value was $33 per share, and the market price was $86.50 per share. The company’s balance sheet shows that the company had $19.7 billion of long-term debt, which was currently selling near par value.

Explanation / Answer

a. Book value of debt-to-value ratio = $19,700,000,000 / [654,000,000 * $33 + $19,700,000,000]

= 0.4772

b. Market value of debt-to-value ratio = $19,700,000,000 / [654,000,000 * $86.50 + $19,700,000]

= 0.2583

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