Preview

FIN515 Second Course Project

Powerful Essays
Open Document
Open Document
1079 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
FIN515 Second Course Project
Weighted Average Cost of Capital: Home Depot, Inc.
Second Project
FIN515 – Managerial Finance
Instructor: Prof. David Eichenholtz
Group:
John Okogeri
Fiona Harrison-Butts
Haider Chaudhry
Mia O’Blenis
Christopher Cardenas
Date: April 5, 2015

TABLE OF CONTENTS

Introduction 3 company profile 3
WACC calculation 4 explanation of calculation/results 5
Limiting factors 5
Conclusion 6 references 7

Weighted Cost of Capital: Home Depot, Inc.

Introduction The purpose of this project is to find the Weighted Average Cost of Capital (WACC) for Home Depot. Investopedia.com reveals that the WACC is “a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk” (Investopedia.com). We will attempt to provide information regarding the following: 1. Description of how we achieved the WACC. 2. Calculations used to obtain WACC. 3. Explanation of the results. 4. Sources of our data. 5. Discussion of confidence level in our answer, as well as any limiting assumptions if applicable.
Company Profile Before going directly into the weighted average cost of capital, it is desirable to provide the profile of the targeted company. The Home Depot, according to Bloomberg Businessweek was founded in 1978 by Bernie Marcus and Arthur Blank. Along with investment banker Ken Langone and merchandising Guru Pat Farrah. The company is headquartered in Atlanta, GA where it opened its first store. According to Bloomberg Businessweek, as of Feb. 2014 Home Depot had 2,263 stores located throughout the US, Puerto Rico, US Virgin Islands, Guam, Canada and Mexico. It currently has 365,000 employees and offer a wide range of building materials,



References: Borad, S. (March 2015). Weighted Average Cost of Capital (WACC) | eFinanceManagement. Retrieved April 9, 2015, from http://www.efinancemanagement.com/investment-decisions/weighted-average-cost-of-capital-wacc Boundless.com. (April 2015). Problems with WACC. Retrieved April 9, 2015, from https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-cost-of-capital-10/the-wacc-90/problems-with-wacc-389-10508/ Home Depot Inc. (2014). Bloomberg Businessweek. Retrieved April 1, 2015 from http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ticker Home Depot Inc. (2014). Fundamental Analysis WACC, Cost of Debt and Cost of Debt and Cost of Equity. Retrieved March 31 from web site: www.stockresearching.com/2014/01/12. Investopedia.com. (April 2014). Weighted Average Cost of Capital (WACC) Definition, Investopedia. Retrieved 4/6/2015 from http://www.investopedia.com/terms/w/wacc.asp MarketWatch (2014), Home Depot Inc. The Wall Street Journal. Retrieved April 1, 2015 from http://www.marketwatch.com/investing/stock/HD?countrycode=US

You May Also Find These Documents Helpful

  • Good Essays

    What is meant by Weighted Average Cost of Capital (WACC)? What are the components of WACC? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term…

    • 2632 Words
    • 10 Pages
    Good Essays
  • Good Essays

    Home Depot vs Lowes

    • 4360 Words
    • 18 Pages

    The Company was founded in 1978 in Atlanta, Georgia and has since become the world's largest home improvement retailer, operating more than 1,500 stores (Home Depot, EXPO, and other subsidiary companies) across North America. Home Depot caters to both do-it-yourselfers and professional customers who serve the home improvement construction and building maintenance market segments. Today, Home Depot’s stores stock up to 35,000 different kinds of building materials and lawn and garden products. Home Depot’s unique services include free in-store clinics for home improvement skills as well as design and decorating consultation, truck and tool rental, home delivery, free potting and many others. The Home Depot currently operates in 50 U.S. states and in the District of Columbia, eight Canadian provinces, and Mexico. In 1998, Home Depot opened stores in Puerto Rico and recently opened two sourcing offices in China.…

    • 4360 Words
    • 18 Pages
    Good Essays
  • Good Essays

    Spyder Sports Case

    • 1038 Words
    • 5 Pages

    1.a) To value Spyder Active Sports Inc., we decided to use the WACC method since we can easily value its cost of assets with the data immediately available to us in the case. We first unlevered the beta’s of 7 comparable companies and took the average to get a comparable unlevered beta for Spyder (Exhibit 1). Since we are assuming Spyder is entirely equity financed, its unlevered asset beta is equal to the beta of its assets. We now have a rough estimate of Spyder’s asset beta, we can use CAPM to calculate the cost of assets of the firm (Exhibit 2). With an appropriate discount rate, we can use the WACC method to discount the company’s projected cash flows. Again, since the company is entirely comprised of equity, the cost of assets is the cost of the entire firm, so we will use it in place of WACC. Using Spyder’s pro-forma income statement, we then calculate the FCF’s for the next 4 years and discount those using our cost of assets (Exhibit 3).…

    • 1038 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC)?…

    • 7434 Words
    • 30 Pages
    Satisfactory Essays
  • Good Essays

    Business Finance

    • 17755 Words
    • 72 Pages

    Which of the following is not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC) as it applies to capital budgeting?…

    • 17755 Words
    • 72 Pages
    Good Essays
  • Good Essays

    The cost of capital is the rate of return that a firm must earn on the projects in which it invests to maintain the market value of its stock. Cohen calculated a weighted average cost of capital (WACC) of 8.4 percent by using the Capital Asset Pricing Model (CAPM) for Nike Inc. I do not agree with Joanna Cohen because of below mentioned:…

    • 762 Words
    • 3 Pages
    Good Essays
  • Good Essays

    The WACC Weighted Average Cost of Capital formula is complex, and can be broken into several components. The individual component costs are provided in the following sections.…

    • 565 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Q1: The Target Capital structure for Kaynat Manufacting is 50% common stock, 15% preferred stock, and 35% debt. If the cost of common equity for the firm is 19.6%, the cost of preferred stock is 12.9% and the before tax cost of debt is 9.5% what is the weighted average cost of capital? The firm's tax rate is 35%.…

    • 670 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Cost of Debt

    • 547 Words
    • 2 Pages

    Once cost of debt and cost of equity have been determined, their blend, the weighted-average cost of capital (WACC), can be calculated. This WACC can then be used as a discount rate for a project's projected cash flows.…

    • 547 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    We are conducting an analysis of Marriott Corporation for calculating the hurdle rates at each of the firm 's three divisions--lodging division, restaurant division and contract service division. Marriott uses Weighted Average Cost of Capital (WACC) as the hurdle rate, and use it to discount the appropriate cash flows when evaluate an investment project. Our goal is to determine the WACC at every division base on the information that the case has provided. First of all, we will determine the cost of debt, cost of equity and the capital structure for the whole company. Then we will compute for the tax rate, and calculate the WACC for the whole company. After this, we will determine the Risk-free Rates, Risk Premiums and Betas for lodging and restaurant divisions in order to calculate the Cost of Equity for these two divisions. After finding out the cost of debt and the fraction of debt for lodging and restaurant divisions, we will be able to calculate the WACC at each of the two divisions. Using a mathematical method, we will then be able to find out the Beta and determine the cost of debt and the fraction of debt for this division. Finally, we will be able to calculate the WACC for contract service division.…

    • 2540 Words
    • 11 Pages
    Powerful Essays
  • Good Essays

    Value Line Publishing

    • 892 Words
    • 4 Pages

    An analysis of the financial ratios for Home Depot and Lowe's shows information that both supports and disproves Galeotafiore's forecasts. First is the Working Capital Ratio. After examination of both financial statements, it displays that both have a healthy amount of working capital and both with working capital growing yearly. Working capital for both have doubled in over five years and indicates growth in the industry.…

    • 892 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Midland Energy Resources is a global energy company with operations in oil and gas exploration and production(E&P) providing a broad array of products and services to upstream oil and gas customers worldwide including refining and marketing (R&M), natural gas, and petrochemicals. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources must determine the weighted average cost of capital (WACC) for the company as a whole and each of its divisions as part of the annual capital budgeting process. Various considerations have to be evaluated as risk factors when calculating the cost-of capital.…

    • 1217 Words
    • 5 Pages
    Powerful Essays
  • Powerful Essays

    Home Depot was founded in 1978 in Atlanta, Georgia. The company went public in 1981. Their stocks were first traded in OTC (Over-The Counter) and were subsequently listed on the New York Stock Exchange in 1984. The Chain stores were warehouses that had huge amounts of building materials and home improvement products targeting customers that were individual home owners and small contractors.…

    • 2170 Words
    • 7 Pages
    Powerful Essays
  • Satisfactory Essays

    Overview of Relevant Formulas Corporate Finance (B40.2302) _________________________________________________________________________________________ 1. Present value of $1 to be received after t years at discount rate r: 2. Present value of annuity of $1 per year for t years at discount rate r:…

    • 585 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Capital Structure

    • 1020 Words
    • 4 Pages

    The Weighted Average Cost of Capital (or WACC) is a financial metric used to measure the cost of capital of a firm in each…

    • 1020 Words
    • 4 Pages
    Good Essays