Please show work for rating. I have answered question A and B but need help on q
ID: 2762827 • Letter: P
Question
Please show work for rating. I have answered question A and B but need help on questions C, E, F and G.
Estimating Market and Book Values and Cost of Capital Measures
The December 31, 2012, partial balance sheet of 3M Company follows ($ millions, except per share amounts). Ycharts.com reported that the total market capitalization of 3M was $63.80 billion an its stock price was $92.85 as of December 31, 2012. Also, Ycharts.com estimates its total enterprise value at $65.73 billion, and its market beta at 0.87. 3M's average pretax borrowing cost is 2.8%, and its statutory tax rate is 37%. Assume that the risk-free rate equals 2.5% and the market premium equals 5%.
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 = $92.85 x 687,091,650 = 63.8 billion
(b) Compute the book value of 3M's long-term debt as of December 31, 2012.
1085 + 4916 = 6001 million
Shares outstanding-2012: 687,091,650 $ 9 Additional paid-in capital 4,044 Retained earnings 30,679 Treasury stock (12,407) Accumulated other comprehensive income (loss) (4,750) Total 3M Company shareholders' equity 17,575 Noncontrolling interest 465 Total equity $18,040 Total liabilities and equity $33,876
Explanation / Answer
3M data Details Amt $ billion m 3M Total Enterprise value on Dec 31.2012. 65.73 n Value of 3M Equity on Dec 31.2012. 63.80 So Market value of 3M debt=m-n= 1.93 Billion e Pretax Cost of 3M debt = 2.80% Tax Rate = 37% Post Tax borrowing cost=2.8%*(1-0.37)= 1.76% f Equity data of 3M Equity beta=0.87 Risk free rate =Rf=2.5% Market premium=Rpm=5% Cost of equity =Rf+Rpm*beta =2.5%+5%*0.87= 6.85% So cost of equity =6.85% g WACC of 3M Type of capital Market value%=$ Billion %wt of value Post tax cost Wtd cost Equity $ 63.80 97.06% 6.85% 6.65% Debt $ 1.93 2.94% 1.76% 0.05% $ 65.73 6.70% So WACC of 3M =6.7%