Cost of Capital of Home Depot - 2570 Words

1. Company Introduction Established in 1978 by Bernie Marcus and Arthur Blank, the Home Depot Corporation opened its first store in Atlanta, becoming the world’s largest home improvement retailer. They are now the second largest retailer in the United States, offering 40,000 to 50,000 different types of home improvement supplies, building materials, and lawn and garden products. They carry a wide assortment of low-cost products, and offer expert advice and exceptional customer service. As an innovator of the home improvement industry, Home Depot has expanded into Canada, Mexico, Argentina, Chile, and Puerto Rico. Currently there are 1,459 stores including fifty EXPO Design Centers, one Floor Store, and three Home Depot Landscape†¦show more content†¦The average tax rate is 0.3859. Our estimation for the firm’s after-tax cost of debt is about 2.25%. The analysis of the cost of debt is summarized in Appendix D. 5. Weighted Average Cost Of Capital In estimating the weighted average cost of capital, we used the cost of equity of 11.63% and the cost of debt of 2.25%. We calculated the weight of debt to be 2% and the weight of equity to be 98%. For the weight of debt we divided debt by the sum of debt and equity, and for the weight of equity we divided equity by the sum of debt and equity. Our estimated Company’s cost of capital is 11.44%, or 12%. The calculations for the cost of capital are shown in Appendix E. Appendix 1. Income Statement Period Ending: 3-Feb-02 28-Jan-01 30-Jan-00 31-Jan-99 Total Revenue $53,553 $45,738 $38,434 $30,219 Cost Of Revenue $37,406 $32,057 $27,023 $21,614 Gross Profit $16,147 $13,681 $11,411 $8,605 Operating Expenses Research And Development N/A N/A N/A N/A Selling General And Administrative Expenses $11,098 $9,348 $7,503 $5,935 Depreciation and Amortization N/A N/A N/A N/A Non Recurring $117 N/A N/A N/A Other Operating Expenses N/A $142 $113 Operating Income $4,932 $4,191 $3,795 $2,670 Total Other Income And Expenses Net $53 $47 $37 $30 Earnings Before Interest And Taxes $4,985 $4,238 $3,832 $2,700 Interest Expense $28 $21 $28 $46 Income Before Tax $4,957 $4,217 $3,804Show MoreRelatedManagement Science1641 Words   |  7 Pagesratios in case Exhibit 7 tell you about the operating performance of Home Depot? What additional information do the different ratios provide? Complete and compare a similar analysis for Lowe’s. 2. 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