I have to write a paper in which I justify the current market price of the organization's debt and equity using the various capital valuation models. Be sure to show all calculations that support your findings, including those involving rates of return. In addition, defend which valuation model best supports your findings. Be sure to cite references.
The Fortune 500 company is Caterpillar....I need some direction on where to start ... I am aware of various valuation models but need some help in understanding application...Variable Growth Models, Free Cash Flow Models, etc...
Specifically, I need to get an understanding of determining Market valve of debt and equity and HOW to get to these conclusions...thank you.
>> Please see attached EXCEL file for detailed answers. <<
Valuation Analysis: Caterpillar, Inc.
In the valuation of any asset, whether it be the common share of a publicly listed or privately owned corporation, the ownership stake in a partnership, or the debt securities of an organization, it is imperative that the underlying organization and its businesses be analyzed, and the impact of the changes in its macroeconomic environment in the financial sustainability of these businesses.
Caterpillar Inc. which was originally organized as Caterpillar Tractor Co. in 1925 is well known for its heavy equipment (Caterpillar, Inc., 2010). Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide (Yahoo! Finance, 2010). According to its Securities and Exchange Commission (or SEC) filing for the Fiscal Year Ended December 31, 2009, Caterpillar, Inc. (2010) currently operates three principal lines of business: 1) machinery, 2) engines, and 3) financial products.
The machinery segment of the company "engages in the design, manufacture, marketing, and sale of construction, mining, and forestry machinery, such as track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts" (Yahoo! Finance, 2010). On the other hand, its engines business "designs, manufactures, markets, and sells engines for electric ...
The expert examines capital valuation for caterpillar.