Hand in PS1 (LT) - Company Home Depot(NASDAQ HD 1.a 1.a 1.c...

Company: Home Depot (NASDAQ: HD)
7
Current Scenario 1 Scenario 2
1.a
Stock Price on 3/2/2012
45.17 45.17 45.17
1.a
No. of shares outstanding
1,541,568,000 1,541,568,000 1,541,568,000
1.c 2.595% 2.595% 2.595%
2
Short term debt/ Current Portion of Long Term Debt
$1,042,000,000 $1,042,000,000 $1,042,000,000
2
Long term debt
$8,707,000,000 $9,707,000,000 $7,707,000,000
2
$9,749,000,000
$10,749,000,000 $8,749,000,000
2
$69,632,626,560 $69,632,626,560 $69,632,626,560
2
Debt to Equity Ratio (D/E)
14% 15% 13%
2
3
Tax Rate (t) 35% 35% 35%
3
12% 12% 12%
3
13.32% 13.45% 13.18%
4
Weighted Average Cost of Capital (WACC) 12% 12% 12%
6
7
The following implicit assumptions generate the results in question 5:
1. No transaction costs
2. No Taxes
3. No Bankruptcy
4. Investment is held constant
5. Efficient Capital markets
6. Managers maximize shareholders' wealth
In real world, the capital markets are normally not efficient. Also, there are significant transaction costs which need to be taken into account. Lastly, the company's divid