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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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