Question
You have searched for HD - The Home Depot, Inc. Their WACC = 4.72% Because Component Value (4 yr avg) Description rD -2.19% Estimated Cost
You have searched for HD - The Home Depot, Inc.
Their WACC = 4.72%
Because
Component | Value (4 yr avg) | Description |
---|---|---|
rD | -2.19% | Estimated Cost of Debt (Interest/Debt) |
Tc | 36.55% | Estimated Tax Rate (Taxes/Pretax Income) |
D/V | 41.88% | Percentage of Financing from Debt (Debt/Enterprise Value) |
rE | 9.12% | Cost of Equity, per the CAPM Model: rE = rf + (rM - rf) |
E/V | 58.12% | Percentage of Financing from Equity (Market Cap/Enterprise Value) |
The figures above were calculated using the following averages from the Income Statement and Balance Sheet:
Value (in $M): | 1/28/2018 | 1/29/2017 | 1/31/2016 | 2/1/2015 | 4 Yr. Avg |
---|---|---|---|---|---|
Interest Expense | $-1,057,000 | $-972,000 | $-919,000 | $-830,000 | $-944,500 |
Income Before Tax | $13,698,000 | $12,491,000 | $11,021,000 | $9,976,000 | $11,796,500 |
Income Tax Expense | $5,068,000 | $4,534,000 | $4,012,000 | $3,631,000 | $4,311,250 |
Short/Current Long Term Debt | $27,028,000 | $23,601,000 | $21,216,000 | $17,197,000 | $22,260,500 |
Long Term Debt | $23,335,000 | $22,349,000 | $20,789,000 | $16,869,000 | $20,835,500 |
The Weighted Average Cost of Capital (WACC) is one of the most important measures in corporate finance. According to Wikipedia
From the above figures determine the following;
WAAC
WACC |
|
Cost of debt, iD |
|
Corporate tax rate, TC |
|
Total debt, D |
|
Total equity, E |
|
Total firm value, V |
|
Cost of equity, iE |
|
CAPM Components
Beta, |
|
Historical market return, iM | Assumed 11% |
Risk-free rate, iF | Assumed 3% |
Using data in the table confirm the accuracy of the sites WACC calculation:
Weight of Equity |
|
|
Weighted Average Cost of Equity | E
|
|
Weight of Debt |
|
|
Pre-Tax Weighted Average Cost of Debt | D
|
|
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