i) In the beginning of the 90s, the Home Depot (HD) tried to capitalize on its successful warehouse- style retailing concept by rapidly expanding the number of stores in the East of the US. The external financing needs associated with this strategy were $1.5 billion over a 5-year time span. In the past, HD had financed its operations with moderate levels of debt, operating leases, equity, and several convertible bond issues (all of which had been called and converted into equity). Suppose you have collected the following information for the Home Depot and its main competitors (who were copying HD's strategy at the time), and relevant financial market information (as of March 1991): The Home Depot Lowe's Hechinger K-Mart (B. Square) Bond Rating A/BBB A A/BBB A Book debt Ratio 65% 30% 57% 28% P/E-ratio Sales 43.0 12.9 9.2 10.4 (billion) $4.8 $ 2.8 $ 1.4 $32.1 Net Profit Margin 4.1% 2.5% 2.4% 2.5% Dividend Payout Ratio 10% 21% 19% 41% Describe how you would use this information and your knowledge of the different types of financial claims to analyze the benefits and drawbacks of an immediate $400 million issue of (1) subordinated debt, (2) equity, and (3) convertible debt, and to make a recommendation to the firm. Discuss what other information you would use, if any (No calculations are needed!) (12 points)