Estimating Market and Book Values and Cost of CapitalMeasuresThe December 31, 2007, partial balance...Estimating...

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Accounting

Estimating Market and Book Values and Cost of CapitalMeasures

The December 31, 2007, partial balance sheet and the 2007 retainedearnings statement from Colgate-Palmolive Company (CL) follow ($millions, except per share amounts). The website Finance.Yahoo.comreported that the total market capitalization of Colgate-Palmolivewas $39.91 billion and its stock price was $78.40 as of December31, 2007. Also, Yahoo estimates its total enterprise value at$42.49 billion, and its market beta at 0.46. In addition,Colgate-Palmolive's average pretax borrowing cost is 4.80%, and itsmarginal tax rate is 35%. Assume that the risk-free rate equals5.30% and the market premium equals 5.70%.
Liabilities and Shareholders'Equity
Notes and loans payable $ 155.9
Current portion of long-term debt 138.1
Accounts payable 1,066.8
Accrued income taxes 262.7
Other accruals 1,539.2
Total current liabilities 3,162.7
Long-term debt 3,251.9
Deferred income taxes 264.1
Other liabilities 1,177.1
Total liabilities 7,855.8
Shareholders' Equity
Preferred stock 197.5
Common stock, $1 par value (1,000,000,000 share
authorized, 732,853,180 shares issued) 732.9
Additional paid-in capital 1,517.7
Retained earnings 10,627.5
Accumulated other comprehensive income (1,666.8)
11,408.8
Unearned compensation (218.9)
Treasury stock, at cost (8,903.7)
Total shareholders' equity 2,286.2
Total liabilities and shareholders' equity $10,142.0
Common Shares Outstanding
Balance, December 31, 2006 512,658,587
Shares issued for stock options 10,051,559
Treasury stock acquired (18,062,892)
Other 4,387,547
Balance, December 31, 2007 509,034,801
(a) Verify Yahoo's computation of Colgate-Palmolive's marketcapitalization using the data from its financial report excerptsabove. (Round your answer to two decimal places.)
Market capitalization = $Answer
x Answer
shares = $Answer
billion

(b) Compute the book value of Colgate-Palmolive's long-term debt asof December 31, 2007.
$Answer
million

(c) Compute the market value of Colgate-Palmolive's debt using thedata from Yahoo. (Round your answer to two decimal places.)
$Answer
billion

(d) Identify reasons behind the difference between the amountscomputed in parts (b) and (c). (Select all that apply.)
Answeryesno
The market price of Colgate-Palmolive's debt changed in value onDecember 31, 2007.
Answeryesno
The market value of debt doesn't include the issuing of newtreasury stock.
Answeryesno
The market value and book value of debt differs due toaccounting usage of historical cost.
Answeryesno
Yahoo.Finance.com might include other liabilities, such as leaseobligations, in the calculation of debt.

(e) Compute Colgate-Palmolive's cost of debt capital. (Round youranswer to one decimal place.)
Answer
%

(f) Compute Colgate-Palmolive's cost of equity capital. (Round youranswer to one decimal place.)
Answer
%

(g) Using your rounded answer from (e) and (f) above, computeColgate-Palmolive's weighted average cost of capital. Use themarket capitalization from Yahoo.Finance.com and your roundedanswer from (c) above for this calculation. (Do not round untilyour final answer. Round answer to one decimal place.)
Answer
%

Liabilities and Shareholders'Equity
Notes and loans payable	$ 155.9
Current portion of long-term debt	138.1
Accounts payable	1,066.8
Accrued income taxes	262.7
Other accruals	1,539.2
Total current liabilities	3,162.7
Long-term debt	3,251.9
Deferred income taxes	264.1
Other liabilities	1,177.1
Total liabilities	7,855.8
Shareholders' Equity
Preferred stock	197.5
Common stock, $1 par value (1,000,000,000 share authorized, 732,853,180 shares issued)	732.9
Additional paid-in capital	1,517.7
Retained earnings	10,627.5
Accumulated other comprehensive income	(1,666.8)
	11,408.8
Unearned compensation	(218.9)
Treasury stock, at cost	(8,903.7)
Total shareholders' equity	2,286.2
Total liabilities and shareholders' equity	$10,142.0

Common Shares Outstanding
Balance, December 31, 2006	512,658,587
Shares issued for stock options	10,051,559
Treasury stock acquired	(18,062,892)
Other	4,387,547
Balance, December 31, 2007	509,034,801

Answer & Explanation Solved by verified expert

3.7 Ratings (650 Votes)

aMarket capitalization stock pricenumber of shares outstanding 7843509034801 shares 3992359944243 or 3992 billion bBook value of ColgatePalmolives longterm debt 32719 1318Current poertion of long See Answer

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In: AccountingEstimating Market and Book Values and Cost of CapitalMeasuresThe December 31, 2007, partial balance...Estimating Market and Book Values and Cost of CapitalMeasuresThe December 31, 2007, partial balance sheet and the 2007 retainedearnings statement from Colgate-Palmolive Company (CL) follow ($millions, except per share amounts). The website Finance.Yahoo.comreported that the total market capitalization of Colgate-Palmolivewas $39.91 billion and its stock price was $78.40 as of December31, 2007. Also, Yahoo estimates its total enterprise value at$42.49 billion, and its market beta at 0.46. In addition,Colgate-Palmolive's average pretax borrowing cost is 4.80%, and itsmarginal tax rate is 35%. Assume that the risk-free rate equals5.30% and the market premium equals 5.70%.Liabilities and Shareholders'EquityNotes and loans payable$ 155.9Current portion of long-term debt138.1Accounts payable1,066.8Accrued income taxes262.7Other accruals1,539.2Total current liabilities3,162.7Long-term debt3,251.9Deferred income taxes264.1Other liabilities1,177.1Total liabilities7,855.8Shareholders' EquityPreferred stock197.5Common stock, $1 par value (1,000,000,000 shareauthorized, 732,853,180 shares issued)732.9Additional paid-in capital1,517.7Retained earnings10,627.5Accumulated other comprehensive income(1,666.8)11,408.8Unearned compensation(218.9)Treasury stock, at cost(8,903.7)Total shareholders' equity2,286.2Total liabilities and shareholders' equity$10,142.0Common Shares OutstandingBalance, December 31, 2006512,658,587Shares issued for stock options10,051,559Treasury stock acquired(18,062,892)Other4,387,547Balance, December 31, 2007509,034,801(a) Verify Yahoo's computation of Colgate-Palmolive's marketcapitalization using the data from its financial report excerptsabove. (Round your answer to two decimal places.)Market capitalization = $Answerx Answershares = $Answerbillion(b) Compute the book value of Colgate-Palmolive's long-term debt asof December 31, 2007.$Answermillion(c) Compute the market value of Colgate-Palmolive's debt using thedata from Yahoo. (Round your answer to two decimal places.)$Answerbillion(d) Identify reasons behind the difference between the amountscomputed in parts (b) and (c). (Select all that apply.)AnsweryesnoThe market price of Colgate-Palmolive's debt changed in value onDecember 31, 2007.AnsweryesnoThe market value of debt doesn't include the issuing of newtreasury stock.AnsweryesnoThe market value and book value of debt differs due toaccounting usage of historical cost.AnsweryesnoYahoo.Finance.com might include other liabilities, such as leaseobligations, in the calculation of debt.(e) Compute Colgate-Palmolive's cost of debt capital. (Round youranswer to one decimal place.)Answer%(f) Compute Colgate-Palmolive's cost of equity capital. (Round youranswer to one decimal place.)Answer%(g) Using your rounded answer from (e) and (f) above, computeColgate-Palmolive's weighted average cost of capital. Use themarket capitalization from Yahoo.Finance.com and your roundedanswer from (c) above for this calculation. (Do not round untilyour final answer. Round answer to one decimal place.)Answer%