he December 31, 2018, partial balance sheet of 3M Company follows (amounts in millions, except share and per share amounts). YCharts.com reported that the total market capitalization of 3M was $108.46 billion and its stock price was $190.54 as of December 31, 2018. Also, YCharts.com estimates its total enterprise value at $119.84 billion, and its market beta at 1.14. 3M’s average pretax borrowing cost is 2.07%, and its assumed statutory tax rate is 21%. Assume that the risk-free rate equals 2.1% and the market premium equals 5%. Liabilities Current liabilities Short-term borrowings and current portion of long-term debt $1,211 Accounts payable 2,266 Accrued payroll 749 Accrued income taxes 243 Other current liabilities 2,775 Total current liabilities 7,244 Long-term debt 13,411 Pension and post-retirement benefits 2,987 Other liabilities 3,010 Total liabilities 26,652 Equity 3M Company shareholders' equity: Common stock,par value $0.01 per share Shares outstanding-2018: 576,575,168 $ 9 Additional paid-in capital 5,643 Retained earnings 40,636 Treasury stock (29,626) Accumulated other comprehensive income (loss) (6,866) Total 3M Company shareholders' equity 9,796 Noncontrolling interest 52 Total equity 9,848 Total liabilities and equity $36,500 (a) Verify Ycharts.com's computation of 3M's market capitalization using the data from its financial report excerpts above. (Round your answer to two decimal places.) Market capitalization = 190.54x 576575168shares = $109.86 billion (b) Compute the book value of 3M's long-term debt as of December 31, 2018. $Answer in million (c) Compute the market value of 3M's debt using the data from Ycharts.com. (Round your answer to two decimal places.) $Answer in billion (d) Compute 3M's cost of debt capital. (Round your answer to one decimal place.) Answer % (e) Compute 3M's cost of equity capital. (Round your answer to one decimal place.) Answer % (f) Using your rounded answer from (e) and (f) above, compute 3M's weighted average cost of capital. Use the market capitalization from Ycharts.com and your rounded answer from (c) above for this calculation. Do not round until your final answer. Round answer to one decimal place.
Estimating Market and Book Values and Cost of Capital Measures
The December 31, 2018, partial balance sheet of 3M Company follows (amounts in millions, except share and per share amounts). YCharts.com reported that the total market capitalization of 3M was $108.46 billion and its stock price was $190.54 as of December 31, 2018. Also, YCharts.com estimates its total enterprise value at $119.84 billion, and its market beta at 1.14. 3M’s average pretax borrowing cost is 2.07%, and its assumed statutory tax rate is 21%. Assume that the risk-free rate equals 2.1% and the market premium equals 5%.
|
Liabilities |
|
|
Current liabilities |
|
|
Short-term borrowings and current portion of long-term debt |
$1,211 |
|
Accounts payable |
2,266 |
|
Accrued payroll |
749 |
|
Accrued income taxes |
243 |
|
Other current liabilities |
2,775 |
|
Total current liabilities |
7,244 |
|
Long-term debt |
13,411 |
|
Pension and post-retirement benefits |
2,987 |
|
Other liabilities |
3,010 |
|
Total liabilities |
26,652 |
|
Equity |
|
|
3M Company shareholders' equity: |
|
|
Common stock,par value $0.01 per share Shares outstanding-2018: 576,575,168 |
$ 9 |
|
Additional paid-in capital |
5,643 |
|
|
40,636 |
|
|
(29,626) |
|
Accumulated other comprehensive income (loss) |
(6,866) |
|
Total 3M Company shareholders' equity |
9,796 |
|
Noncontrolling interest |
52 |
|
Total equity |
9,848 |
|
Total liabilities and equity |
$36,500 |
(a) Verify Ycharts.com's computation of 3M's market capitalization using the data from its financial report excerpts above. (Round your answer to two decimal places.)
Market capitalization = 190.54x 576575168shares = $109.86 billion
(b) Compute the book value of 3M's long-term debt as of December 31, 2018.
$Answer in million
(c) Compute the market value of 3M's debt using the data from Ycharts.com. (Round your answer to two decimal places.)
$Answer in billion
(d) Compute 3M's cost of debt capital. (Round your answer to one decimal place.)
Answer %
(e) Compute 3M's
Answer %
(f) Using your rounded answer from (e) and (f) above, compute 3M's weighted average cost of capital. Use the market capitalization from Ycharts.com and your rounded answer from (c) above for this calculation.
Do not round until your final answer. Round answer to one decimal place.
Answer %
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