CALCULATING 3M's Cost OF CAPITAL Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions. In this chapter, we described how to estimate a company's WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found from various data sources on the Internet. Here we walk through the steps used to calculate Minnesota Mining & Manufacturing's (MMM) WACC. 55 LVLVLIVI) WHCL. DISCUSSION QUESTIONS 1. As a first step, we need to estimate what percentage of MMM's capital comes from debt, preferred stock, and common equity. This information can be found on the firm's latest annual balance sheet. (As of year end 2014, MMM had no preferred stock.) Total debt includes all interest-bearing debt and is the sum of short-term debt and long-term debt. a. Recall that the weights used in the WACC are based on the company's target capital structure. If we assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for MMM? b. Find MMM's market capitalization, which is the market value of its common equity. Using the sum of its short- term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firm's debt and common equity weights to be used in the WACC equation. These weights are approximations of market value weights. Be sure not to include accruals in the debt calculation. L an find number Assets Fiscal year is January-December. All values USD millions 2014 2015 2016 2017 2018 5-year trend Cash & Short Term Investments 2.52B 1.92B 2.68B 4.13B 3238 Cash Only 1.9B 1.8B 2.4B 3.058 2.858 Short-Term Investments 626M 118M 280M 1.08B Total Accounts Receivable 4.24B 4.15B 4.39B 4.91B 5.02B Accounts Receivables, Net 4.24B 4.15B 4.39B 4.91B 5.02B Accounts Receivables, Gross 4.33B 4.25B 4.48B 5.01B 5.12B Bad Debt/Doubtful Accounts (94M) (91M) (88M) (103M) (95M) Other Receivables Inventories 3.71B 3.52B 3.398 4,038 4.373 Finished Goods 1.72B 1.66B 1.63B 1.92B 2.12B Work in Progress 1.08B 1.01B 1.048 1.22B 1.298 Raw Materials 902M 855M 717M 901M 954M Progress Payments & Other Other Current Assets 1.3B 1.4B 1.27B 1.2B 1.09B Miscellaneous Current Assets 1.3B 1.4B 1.27B 266M 349M Total Current Assets 11.77B 10.99B 11.73B 14.28B 13.71B 2015 2016 2017 2018 5-year trend Net Property, Plant & Equipment 8.878 8.74B Property, Plant & Equipment - Gross 24.878 1 Buildings 688 7.528 340M Land & Improvements Computer Software and Equipm Other Property, Plant & Equipment Accumulated Depreciation 16.14B Total Investments and Advances 246M Other Long-Term Investments 176M 2299 Long-Term Note Receivable Intangible Assets 12.718 Net Goodwill 10.05B Net Other Intangibles 2.66B N Other Assets 734M Tangible Other Assets 526M + Total Assets e 36.5B ting Started GIUPAT Mail O CCE Specialties Two... UPAT - The Internatio... O Marketing Research Home News Viewer Markets Investing Personal Finance Retirement Economy Real Estate Entertainment Watchlist Alerts Games Q Stocks - Funds WCIC CU TOAS ETFs - Options. Bonds. Commodities Currencies - Crypto . Futures FA Center UNT Tools TEVE Getting Started. Premium Newsletters CFF Deferred Taxes - Credit 141M 551M 145M 235M 279M Deferred Taxes - Debit 889M 675M 422M 511M 365M Other Liabilities 1.09B 1.17B 1.2B 2.35B 2.36B FLLFE Other Liabilities (excl. Deferred Income) 1.07B 1.15B 1.19B 2.358 2.36B Deferred Income 21M 19M 15M Currencies Crypto. Futures FA Contor Tools Getting Started Prem iew s Stocks. Funds - ETFs Options Bencs Cmmodities Liabilities & Shareholders' Equity 2014 2015 2016 2017 2018 5-year trend ST Debt & Current Portion LT Debt 106M 2.048 972M 1.858 1218 Short Term Debt 51M 2.048 751M 466M Current Portion of Long Term Debt 55M 1.18 745M Accounts Payable 1.81B 1.69B 1.95B 2273 Income Tax Payable 469M 332M 310M 243M 3.528 Other Current Liabilities 3.628 3.05B 3,158 LIITITIFF 3.588 Dividends Payable 848M Accrued Payroll 964M 1150 899M 1.05B Miscellaneous Current Liabilities 2.25 2.435 2478 Total Current Liabilities 6.228 7.248 10.728 N Long-Term Debt 13.49 13.418 Long-Term Debt excl. Capitalized Leases Non-Convertible Debt 68B 13.418 l Convertible Debt Capitalized Lease Obligations 75M 60M TE 3.776 3.948 3.298 Provision for Risks & Charges (748M) (124M) (277M) (276M) (0611 Deferred Taxes Total Liabilities 22.560 26.378 26.658 Non-Equity Reserves Preferred Stock (Carrying Value) Redeemable Preferred Stock Non-Redeemable Preferred Stock Common Equity (Total) 11.438 11.56B 9.86 Common Stock Par Carry Value OM SM SM Retained Earnings 32B 37.918 39.128 40.64B ESOP Debt Guarantee Cumulative Translation Adjustment/Unreal 12.18 Unrealized Gain Loss Marketable Securities Revaluation Reserves 19.318) (29.638) 13.11B Treasury Stock Total Shareholders' Equity Accumulated Minority interest Total Equity Liabilities & Shareholders' Equity 59M 9.88 Mb 52M 11.62B 9.858 Il 32.918 37.99B 36.58 Il 2010 FactSet Research Systems Inc. All rights reserved Source FactSet Fundamentals 31.27B 88B Copyr CALCULATING 3M's Cost OF CAPITAL Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions. In this chapter, we described how to estimate a company's WACC, which is the weighted average of its costs of debt, preferred stock, and common equity. Most of the data we need to do this can be found from various data sources on the Internet. Here we walk through the steps used to calculate Minnesota Mining & Manufacturing's (MMM) WACC. 55 LVLVLIVI) WHCL. DISCUSSION QUESTIONS 1. As a first step, we need to estimate what percentage of MMM's capital comes from debt, preferred stock, and common equity. This information can be found on the firm's latest annual balance sheet. (As of year end 2014, MMM had no preferred stock.) Total debt includes all interest-bearing debt and is the sum of short-term debt and long-term debt. a. Recall that the weights used in the WACC are based on the company's target capital structure. If we assume that the company wants to maintain the same mix of capital that it currently has on its balance sheet, what weights should you use to estimate the WACC for MMM? b. Find MMM's market capitalization, which is the market value of its common equity. Using the sum of its short- term debt and long-term debt from the balance sheet (we assume that the market value of its debt equals its book value) and its market capitalization, recalculate the firm's debt and common equity weights to be used in the WACC equation. These weights are approximations of market value weights. Be sure not to include accruals in the debt calculation. L an find number Assets Fiscal year is January-December. All values USD millions 2014 2015 2016 2017 2018 5-year trend Cash & Short Term Investments 2.52B 1.92B 2.68B 4.13B 3238 Cash Only 1.9B 1.8B 2.4B 3.058 2.858 Short-Term Investments 626M 118M 280M 1.08B Total Accounts Receivable 4.24B 4.15B 4.39B 4.91B 5.02B Accounts Receivables, Net 4.24B 4.15B 4.39B 4.91B 5.02B Accounts Receivables, Gross 4.33B 4.25B 4.48B 5.01B 5.12B Bad Debt/Doubtful Accounts (94M) (91M) (88M) (103M) (95M) Other Receivables Inventories 3.71B 3.52B 3.398 4,038 4.373 Finished Goods 1.72B 1.66B 1.63B 1.92B 2.12B Work in Progress 1.08B 1.01B 1.048 1.22B 1.298 Raw Materials 902M 855M 717M 901M 954M Progress Payments & Other Other Current Assets 1.3B 1.4B 1.27B 1.2B 1.09B Miscellaneous Current Assets 1.3B 1.4B 1.27B 266M 349M Total Current Assets 11.77B 10.99B 11.73B 14.28B 13.71B 2015 2016 2017 2018 5-year trend Net Property, Plant & Equipment 8.878 8.74B Property, Plant & Equipment - Gross 24.878 1 Buildings 688 7.528 340M Land & Improvements Computer Software and Equipm Other Property, Plant & Equipment Accumulated Depreciation 16.14B Total Investments and Advances 246M Other Long-Term Investments 176M 2299 Long-Term Note Receivable Intangible Assets 12.718 Net Goodwill 10.05B Net Other Intangibles 2.66B N Other Assets 734M Tangible Other Assets 526M + Total Assets e 36.5B ting Started GIUPAT Mail O CCE Specialties Two... UPAT - The Internatio... O Marketing Research Home News Viewer Markets Investing Personal Finance Retirement Economy Real Estate Entertainment Watchlist Alerts Games Q Stocks - Funds WCIC CU TOAS ETFs - Options. Bonds. Commodities Currencies - Crypto . Futures FA Center UNT Tools TEVE Getting Started. Premium Newsletters CFF Deferred Taxes - Credit 141M 551M 145M 235M 279M Deferred Taxes - Debit 889M 675M 422M 511M 365M Other Liabilities 1.09B 1.17B 1.2B 2.35B 2.36B FLLFE Other Liabilities (excl. Deferred Income) 1.07B 1.15B 1.19B 2.358 2.36B Deferred Income 21M 19M 15M Currencies Crypto. Futures FA Contor Tools Getting Started Prem iew s Stocks. Funds - ETFs Options Bencs Cmmodities Liabilities & Shareholders' Equity 2014 2015 2016 2017 2018 5-year trend ST Debt & Current Portion LT Debt 106M 2.048 972M 1.858 1218 Short Term Debt 51M 2.048 751M 466M Current Portion of Long Term Debt 55M 1.18 745M Accounts Payable 1.81B 1.69B 1.95B 2273 Income Tax Payable 469M 332M 310M 243M 3.528 Other Current Liabilities 3.628 3.05B 3,158 LIITITIFF 3.588 Dividends Payable 848M Accrued Payroll 964M 1150 899M 1.05B Miscellaneous Current Liabilities 2.25 2.435 2478 Total Current Liabilities 6.228 7.248 10.728 N Long-Term Debt 13.49 13.418 Long-Term Debt excl. Capitalized Leases Non-Convertible Debt 68B 13.418 l Convertible Debt Capitalized Lease Obligations 75M 60M TE 3.776 3.948 3.298 Provision for Risks & Charges (748M) (124M) (277M) (276M) (0611 Deferred Taxes Total Liabilities 22.560 26.378 26.658 Non-Equity Reserves Preferred Stock (Carrying Value) Redeemable Preferred Stock Non-Redeemable Preferred Stock Common Equity (Total) 11.438 11.56B 9.86 Common Stock Par Carry Value OM SM SM Retained Earnings 32B 37.918 39.128 40.64B ESOP Debt Guarantee Cumulative Translation Adjustment/Unreal 12.18 Unrealized Gain Loss Marketable Securities Revaluation Reserves 19.318) (29.638) 13.11B Treasury Stock Total Shareholders' Equity Accumulated Minority interest Total Equity Liabilities & Shareholders' Equity 59M 9.88 Mb 52M 11.62B 9.858 Il 32.918 37.99B 36.58 Il 2010 FactSet Research Systems Inc. All rights reserved Source FactSet Fundamentals 31.27B 88B Copyr