Stock Valuations and Bond Issuance.

Prompt: Calculate stock and bond valuations for Home Depot Inc. and use the results to support your explanations of shareholder value and increasing capital. Assess the company’s dividend policies and bond issuance policies in your explanations. Complete your calculations on the designated tab of the Final Project Student Workbook.

***Link for case study – https://www.sec.gov/Archives/edgar/data/354950/000…

Specifically, the following critical elements must be addressed:

II. Stock Valuation

A. Based on the figures provided, calculate each of the following:

1. The new dividend yield if the company increased its dividend per share by 1.75

2. The dividend yield if the firm doubled its outstanding shares

3. The rate of return on equity (i.e., the cost of stock) based on the new dividend yield you calculated above

B. What effect would you expect each of the calculations you performed to have in terms of shareholder value? In other words, suppose the company’s goal is to maximize shareholder value. How will each of the situations support or inhibit that goal? Be sure to justify your reasoning.

C. To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.

III. Bond Issuance

A. Assuming this company already has bonds outstanding, calculate the following:

1. The new value of the bond if overall rates in the market increased by 5%

2. The new value of the bond if overall rates in the market decreased by 5%

3. The value of the bond if overall rates in the market stayed exactly the same

B. What effect would you expect each of the calculations you performed to have in terms of the company’s decision to raise capital in this manner? In other words, for each situation, would you consider bond valuation to be a viable option for increasing capital? Be sure to justify your reasoning.

C. To what extent do you feel the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate your claims.

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