In 2015, Caterpillar Inc. had about 653 million shares outstanding. Their book v

Question

In 2015, Caterpillar Inc. had about 653 million shares outstanding. Their book value was $32.3 per share, and the market price was $74.00 per share. The company’s balance sheet shows that the company had $20.20 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

CATERPILLAR INC: a) Book value of equity = 653*32.3 = $        21,091.90 million Book value of debt $        20,200.00 million Book value of firm $        41,291.90 million Book debt to value ratio = 20200/41291.90 = 48.92% b) Market value of equity = 653*74 = $        48,322.00 million Market value of debt $        20,200.00 million Book value of firm $        68,522.00 million Market debt-to-value ratio = 20200/68522 = 29.48% c) The Market Value ratio should be used to calculate Company's Cost of Capital.

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