Part B, Web-based Exercises:

Please note: "cost of capital" is the same as "required return (i.e., expected return)" of capital, and "security market line" SML is the same as CAPM.)

(A) According to http://finance.yahoo.com, "Statistics", what are the given values of CAT's "Market Cap (for common stock equity)" E and "Total Debt (for long-term debt)" D, respectively? And thus what shall be CAT's "weight of equity capital, We" and "weight of debt capital, Wd", respectively?

Hints: For example, pretending a firms reported Market Cap is $75 billion, Total Debt is $25 billion, then We = 75 bil / (75 bil + 25 bil) = 75 bil / 100 bil = 0.75 (or 75%), and Wd = 25 bil / (75bil + 25 bil) = 25 bil / 100 bil = 0.25 (or 25%). Be careful, in financial management and wall street, "Market Cap" does not mean the sum of all capital (E + D), but instead only refers to the equity E alone.