Question

Q.1 In 2015, Caterpillar Inc. had about 652 million shares outstanding. Their

book value was $31.3 per share, and the market price was $73.50 per share. The company’s balance sheet shows that the company had $21.20 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.)

Q.2 Pangbourne Whitchurch has preferred stock outstanding. The stock pays a dividend of $6 per share, and sells for $30. The corporate tax rate is 35%. What is the percentage cost of the preferred stock? (Enter your answer as a whole percent.)

Q.3 Reactive Power Generation has the following capital structure. Its corporate tax rate is 20%.

Security                    Market Value              Required Rate

                                                                          of Return

Debt                              $ 20million                        4%

Preferred stock               30million                        6             

Common stock                 50million                       10          

What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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