Busi 530 Chapter 4 Solutions Here is a simplified balance sheet for Caterpillar Tractor: Caterpillar Tractor Balance Sheet ($ in millions) Current assets $ 42,531 Current liabilities $ 29,748 Longterm assets 46,846 Longterm debt 27,759 Other liabilities 14,331 Equity 17,539 Total $ 89,377 Total $ 89,377 Caterpillar has 664 million shares outstanding with a market price of $90 a share. a. Calculate the companys market value added. (Enter your answers in millions.) Market value $ 59,760 million Market value added $ 42,221 million b. Calculate the markettobook ratio. (Round your answer to 2 decimal places.) Markettobook ratio 3.41 c. Has the company created value for shareholders? Yes References Worksheet Learning Objective: 0401 Calculate and interpret the market value and market value added of a public corporation. Here is a simplified balance sheet for Caterpillar Tractor: Caterpillar Tractor Balance Sheet ($ in millions) Current assets $ 42,531 Current liabilities $ 29,748 Longterm assets 46,846 Longterm debt 27,759 Other liabilities 14,331 Equity 17,539 9/21/2016 Assignment Print View http://ezto.mheducation.com/hm_finance.tpx?todo=printview 3/20 Total $ 89,377 Total $ 89,377 Caterpillar has 664 million shares outstanding with a market price of $90 a share. a. Calculate the companys market value added. (Enter your answers in millions.) Market value $ 59,760 ± 0.1% million Market value added $ 42,221 ± 0.1% million b. Calculate the markettobook ratio. (Round your answer to 2 decimal places.) Markettobook ratio 3.41 ± 1% c. Has the company created value for shareholders? Yes Explanation: a. Market value = 664 million × $90 = $59,760 million Market value added = $59,760 17,539 = $42,221 million b. Market value / Book value = $59,760 / $17,539 = 3.41 c. Yes. The company has increased the value of the equity investment by 341%. 9/21/2016 Assignment Print View http://ezto.mheducation.com/hm_finance.tpx?todo=printview 4/20 2. Award: 2 out of 2.00 points Home Depots common stock closed fiscal 2012 at a price of $82.30 per share. There were 1,784 million shares outstanding, At the end of 2012, the book value of Home Depots equity was $17,792 million. Suppose the broad stock market falls 10% in a year and Home Depots stock price falls by 10%. a. Will the companys market value added rise or fall? Fall b. Should this change affect our assessment of the performance of Home Depots managers? Yes c. Calculate the market value added, if the stock market were unchanged and Home Depots stock fell by 10%. (Enter your answer in millions. Round intermediate calculations and final answer to the nearest whole number.) Market value added $ 114,349 million rev: 02_03_2016_QC_CS40565 References Worksheet Learning Objective: 0401 Calculate and interpret the market value and market value added of a public corporation. Home Depots common stock closed fiscal 2012 at a price of $82.30 per share. There were 1,784 million shares outstanding, At the end of 2012, the book value of Home Depots equity was $17,792 million. Suppose the broad stock market falls 10% in a year and Home Depots stock price falls by 10%. a. Will the companys market value added rise or fall? Fall b. Should this change affect our assessment of the performance of Home Depots managers? Yes c. Calculate the market value added, if the stock market were unchanged and Home Depots stock fell by 10%. (Enter your answer in millions. Round intermediate calculations and final answer to the nearest whole number.) Market value added $ 114,349 ± .1% million rev: 02_03_2016_QC_CS40565 9/21/2016 Assignment Print View http://ezto.mheducation.com/hm_finance.tpx?todo=printview 5/20 Explanation: Market value = 1,784 million × $82.30 = $146,823 million The market value added for Home Depot = $146,823 ? 17,792 = $129,031 million Assuming the stock price drops 10%, the market value is now $146,823 × .90 = $132,141 Market value added = $132,141 17,792 = $114,349 9/2…
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