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

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  

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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