Estimating Market and Book Values and Cost of Capital MeasuresThe 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$1,211Accounts payable2,266Accrued payroll749Accrued income taxes243Other current liabilities2,775Total current liabilities7,244Long-term debt13,411Pension and post-retirement benefits2,987Other liabilities3,010Total liabilities26,652Equity 3M Company shareholders' equity: Common stock,par value $0.01 per share Shares outstanding-2018: 576,575,168$ 9Additional paid-in capital5,643Retained earnings40,636Treasury stock(29,626)Accumulated other comprehensive income (loss)(6,866)Total 3M Company shareholders' equity9,796Noncontrolling interest52Total equity9,848Total liabilities and equity$36,500 a. Compute the book value of 3M's long-term debt as of December 31, 2018: b. Compute the market value of 3M's debt using the data from Ycharts.com. (Round your answer to two decimal places.)

The book value of debt is commonly used in liquidity ratio, where it is compared to either assets or…

Answered: The December 31, 2018, partial balance…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

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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
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