In 2015, Caterpillar Inc. had about 710 million shares outstanding. Their book v
ID: 2810826 • Letter: I
Question
In 2015, Caterpillar Inc. had about 710 million shares outstanding. Their book value was $42.3 per share, and the market price was $85.00 per share. The company’s balance sheet shows that the company had $29.50 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.)
Explanation / Answer
Solution: a. Book debt-to-value ratio 0.50 Working Notes: Book debt-to-value ratio = Book value of Debt / (Book value of Debt + Book value of Equity) Book debt-to-value ratio = $29.50 billion / ($29.50 billion + $30.033 billion ) Book debt-to-value ratio = $29.50 /$59.533 Book debt-to-value ratio = 0.495523491 Book debt-to-value ratio = 0.50 Book value of Equity = No of shares x book value per share Book value of Equity = 710 million x $42.30 Book value of Equity = $30,033 million Book value of Equity = $30.033 billion b. Market debt-to-value ratio 0.33 Working Notes: Market debt-to-value ratio= Market value of Debt / (Market value of Debt + Market value of Equity) Market debt-to-value ratio = $29.50 billion / ($29.50 billion + $60.35 billion ) Market debt-to-value ratio = $29.50 /$89.85 Market debt-to-value ratio = 0.3283249 Market debt-to-value ratio = 0.33 Market value of Equity = No of shares x Market value per share Market value of Equity = 710 million x $85 Market value of Equity = $60,350 million Market value of Equity = $60.35 billion Notes: Market value of debt and Book value debt are taken same as they are selling at its par value Please feel free to ask if anything about above solution in comment section of the question.
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