FIN 550 Milestone Four - Milestone Four Macroeconomic Changes Southern New Hampshire University FIN 550 Corporate Financial Management Milestone

FIN 550 Milestone Four - Milestone Four Macroeconomic...

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Milestone Four: Macroeconomic Changes Southern New Hampshire University FIN 550 Corporate Financial Management
Milestone Four: Macroeconomic Changes Macroeconomic activities have an effect on everyday activities for both consumers and businesses, including Home Depot. To be convinced that the financial analysis should only be focused on what is happening internally with the company would not give the full picture of what the possible outcomes of all the scenarios would be. To get a better understanding of this, I will go through the analysis and show how macroeconomic activities may change parts of the analysis for the better and for the worse. Macroeconomics is the study of how the economy behaves given items such as inflation, growth, GDP, unemployment, and social and political issues (Bailly, 2009). All of these can have a wide and varying effect on how the economy behaves and thus, the companies that rely on it. Implications of Interest Rate Changes The first macroeconomic activity I am going to look at would be a change in the interest rate. Interest rates are set by the Federal Reserve. A change in the interest rate can be both good and bad for Home Depot depending on whether it increases or decreases. Interest rates have the ability to change Home Depot’s WACC due to changing the rate paid out on bonds and debt, further causing for a potential increase in other forms of funding. The WACC is a major determining factor for several analyses done for Home Depot. The WACC is used when calculating Home Depot’s present value of estimated future cash flows. A change in the WACC

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