In 2015, Caterpillar Inc. had about 580 million shares outstanding. Their book value was $39.3 per share, and the market price was $70.50 per share. The companys balance sheet shows that the company had $26.00 billion of long-term debt, which was currently selling near par value.

a. What was Caterpillars book debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.)

b. What was its market debt-to-value ratio? (Do not round intermediate calculations. Enter your answer as a decimal rounded to 2 decimal places.)

c. Which measure should you use to calculate the companys cost of capital?

Book value

Market value

Olympic Sports has two issues of debt outstanding. One is a 9% coupon bond with a face value of $29 million, a maturity of 10 years, and a yield to maturity of 10%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 10%. The face value of the issue is $34 million, and the issue sells for 96% of par value. The firm's tax rate is 20%.

a. What is the before-tax cost of debt for Olympic? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Before tax-cost of debt _________%

b. What is Olympic's after-tax cost of debt? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

After-tax cost of debt _______%

Pangbourne Whitchurch has preferred stock outstanding. The stock pays a dividend of $6 per share, and sells for $40. The corporate tax rate is 35%. What is the percentage cost of the preferred stock? (Enter your answer as a whole percent.)

Cost of preferred stock _______%

Reliable Electric is a regulated public utility, and it is expected to provide steady dividend growth of 6% per year for the indefinite future. Its last dividend was $3 per share; the stock sold for $30 per share just after the dividend was paid. What is the companys cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Cost of Equity _______%

Reactive Power Generation has the following capital structure. Its corporate tax rate is 35%.

Security	Market Value			Required Rate of Return
Debt	$	20	million		6	%
Preferred stock		20	million		8
Common stock		60	million		12

What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC ______%

Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 21% of the companys present value, and you believe that at this capital structure the companys debt holders will demand a return of 7% and stockholders will require 14%. The company is forecasting that next years operating cash flow (depreciation plus profit after tax at 40%) will be $59 million and that investment in plant and net working capital will be $21 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year.

a. What is the total value of Icarus? (Do not round intermediate calculations. Enter your answer in millions rounded to the nearest whole dollar amount.)

b. What is the value of the companys equity? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.)