Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

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

Liabilities Current liabilities Short-term borrowings and current portion of long-term debt $ 1,085 Accounts payable 1,762 Accrued payroll 701 Accrued income taxes 371 Other current liabilities 2,281 Total current liabilities 6,200 Long-term debt 4,916 Pension and post-retirement benefits 3,086 Other liabilities 1,634 Total liabilities 15,836 Equity 3M Company shareholders' equity: Common stock,par value $.01 per share
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%