Course Hero Logo

SelfTestHomework_Topic3_Question.doc.docx - Cost of Capital...

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 1 - 2 out of 3 pages.

Cost of Capital and Company Valuation1.In 2013 Caterpillar Inc. had about 648 million shares outstanding. Their book value was $27 per share, and themarket price was $83.50 per share. The company's balance sheet shows that the company had $25.7 billion oflong-term debt, which was currently selling near par value. a. What was Caterpillar's book debt-to-value ratio
b. What was its market debt-to-value ratio? Market value= D/V= 25.7/(83.50x0.648 )=0.32c. Which of these two measures should you use to calculate the company's cost of capital? Market value is theproper measure, as it is determined by cash flows and forecasts, rather than accounting rules.
2.Here is a simplified balance sheet for Epicure Pizza (figures in $ millions):AssetsLiabilities and Shareholders' EquityCurrent assets80Current liabilities60Fixed assets125Long-term debt65Equity80Total205Total205Note: There are 16 million shares outstanding.Epicure shares are currently priced at $12 each.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 3 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Summer
Professor
LI

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture