FIN515 – Managerial Finance
Instructor: Prof. David Eichenholtz
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