Business, 30.04.2021 21:20, baidentheodore617

Estimating Market and Book Values and Cost of Capital Measures The December 31, 2010, partial balance sheet of 3M Company follow ($ millions, except per share amounts). Ycharts reported that the total market capitalization of 3M was $61.86 billion an its stock price was $86.30 as of December 31, 2010. Also, ychart estimates its total enterprise value at $63.94 billion, and its market beta at 0.83. 3M's average pretax borrowing cost is 3.7%, and its statuory tax rate is 35%. Assume that the risk-free rate equals 3.1% and the market premium equals 5%. Liabilities
Current liabilities
Short-term borrowings and current portion of long-term debt $1,269
Accounts payable 1,662
Accrued payroll 778
Accrued income taxes 358
Other current liabilities 2,022
Total current liabilities 6,089
Long-term debt 4,183
Pension and postretirement benefits 2,013
Other liabilities 1,854
Total liabilities 14,139
Equity
3M Company shareholders' equity:
Common stock, par value $.01 per share $9
Shares outstanding-2010: 711,977,608
Shares outstanding-2009: 710,599,199
Additional paid-in capital 3,468
Retained earnings 25,995
Treasury stock -10,266
Accumulated other comprehesive income (loss) -3,543
Total 3M Company shareholders' equity 15,663
Noncontrolling interest 354
Total equity $16,017
Total liabilities and equity $30,156

Required:
a. Verify Ycharts. com computation of 3M's market capitalization using the data from its financial report excerpts above.
b. Compute the book value of 3M's long-term debt as of December 31, 2010.
c. Compute the market value of 3M's debt using the data from Ycharts. com.
d. Compute 3M's cost of debt capital.

Answers: 3

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Estimating Market and Book Values and Cost of Capital Measures The December 31, 2010, partial balanc...