In 2015, Caterpillar Inc. had about 654 million shares outstanding. Their book v
ID: 2790109 • Letter: I
Question
In 2015, Caterpillar Inc. had about 654 million shares outstanding. Their book value was $33.3 per share, and the market price was $74.50 per share. The company’s balance sheet shows that the company had $19.20 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?
Book value
Market value
Explanation / Answer
a.
Caterpillar’s book debt-to-value ratio
=(19.20*1000)/(654*33.3+19.20*1000)
=0.47
b.
Caterpillar’s market debt-to-value ratio
=(19.20*1000)/(654*74.50+19.20*1000)
=0.28
c.
Market value
the above are the answer
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