1. Caterpillar Inc. reported its annual financial statements for the 2018 fiscal year (See the Excel sheet attached for Cats financials in the last 4 years). The day before the report, the firms market price per share closed at $127.07. For those who are not familiar with Caterpillar, here is a brief description of their business:

Caterpillar Inc. is an American Fortune 100 corporation which designs, develops, engineers, manufactures, markets and sells machinery, and engines to customers via a worldwide dealer network. It is the world's largest construction equipment manufacturer. Caterpillar products and components are manufactured and sold in 110 facilities worldwide. 51 plants are located in the United States and 59 overseas plants are located in Australia, Belgium, Brazil, Canada, China, Czech Republic, England, France, Germany, Hungary, India (Chennai), Indonesia, Italy, Japan, Mexico, the Netherlands, Northern Ireland, Poland, Russia, Singapore, South Africa and Sweden.

The market capitalization rate on the day before the report (Investors annual required rate of return given the firms debt/equity structure) is 32.85%, i.e. k=0.3285. Use the information provided here as well as the financial statements to answer the following questions:

1. (4) What is Caterpillars 2018 Return on Equity (ROE)? Please use the Dupont system (Show its components) and the market-to-book method.
2. (6) Find the intrinsic value per share using the Constant Dividend Discount Model. (Hint: Retained earnings for 2018 is the change in the balance of retained earnings since last year, i.e. 2018 retained earnings 2017 retained earnings). Compare it with yesterdays market price, is it time to add Caterpillar Inc. to our portfolio?
3. (3) What is the major issue in using the constant dividend discount model when measuring the fundamental value of a firm? Use this firm as an example to illustrate your point.
4. (3) In your opinion, how can Caterpillar provide growth to shareholders? And what type of macroeconomic factors/risks they are exposed to? (Think about its business line and where the growth in revenue can come from)
5. (4) Find the inventory turnover ratio and average collection period for years (2018, 2017, and 2016). Comparing the ratios over the 3 years, is the company being more or less efficient in its use of assets?