1. Compute the market D/E ratio for Home Depot. Approximate the market value of debt by the book value of net debt; include both Long-Term Debt and Short-Term Debt/Current Portion of Long-Term Debt from the balance sheet and subtract any cash holdings. Use the stock price and number of shares outstanding to calculate the market value of equity.

2. Compute the cost of levered equity (rE) for Home Depot using their current market debt-to-equity ratio and Eq. 14.5. ck to repurchase debt. (Although you realize that the cost of debt capital rD may change with changes in leverage, for these modestly small changes you decide to assume that rD remains constant. What is the market D/E ratio in each of these cases?

Income Statements	in 1000s dolars
Period Ending:	1/28/2018
Total Revenue	$100,904,000
Cost of Revenue	$66,548,000
Gross Profit	$34,356,000
Operating Expenses
Sales, General and Admin.	$17,864,000
Other Operating Items	$1,811,000
Operating Income	$14,681,000
Add'l income/expense items	$74,000
Earnings Before Interest and Tax	$14,755,000
Interest Expense	$1,057,000
Earnings Before Tax	$13,698,000
Income Tax	$5,068,000
Net Income-Cont. Operations	$8,630,000
Net Income	$8,630,000
Net Income Applicable to	$8,630,000
Common Shareholders
Balance Sheet
Period Ending:	1/28/2018
Current Assets
Cash and Cash Equivalents	$3,595,000
Short Term Investments	$0
Net Receivables	$1,952,000
Inventory	$12,748,000
Other Current Assets	$638,000
Total Current Assets	$18,933,000
Long Term Assets
Long Term Investments	$0
Fixed Assets	$22,075,000
Goodwill	$2,275,000
Intangible Assets	$0
Other Assets	$1,246,000
Total Assets	$44,529,000
Current Liabilities
Accounts Payable	$11,628,000
Short Term Debt/Current Portion of Long Term Debt	$2,761,000
Other Current Liabilities	$1,805,000
Total Current Liabilities	$16,194,000
Long Term Debt	$24,267,000
Other Liabilities	$2,174,000
Deferred Liability Charges	$440,000
Total Liabilities	$43,075,000
Stock Holders Equity
Common Stocks	$89,000
Capital Surplus	$10,192,000
Retained Earnings	$39,935,000
Treasury Stock	($48,196,000)
Other Equity	($566,000)
Total Equity	$1,454,000