FIN 550 Milestone Two

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Overview: For the final project, you will use this case study to prepare a financial
analysis report for Home Depot Inc. You will include in your analysis the background
calculations and managerial analysis for each of the following topics: time value of
money, stock and bond valuation, and capital budgeting. You will also discuss
macroeconomic variables that might impact the company’s financial decision making
and strategic objectives. These topics will be covered over four milestones to be
submitted throughout the course before you submit the final project. Note that while
these elements may seem separate and unrelated, together they will present a
well-rounded view of the company’s finances with regard to the topics.
For this milestone, you will submit a draft of the Stock Valuation and Bond Issuance
sections of the final project, along with your supporting explanations.
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.
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.
Guidelines for Submission: Your paper must be submitted as a 3- to 4-page Microsoft
Word document, not including your calculations, which should be completed in the
Final Project Student Workbook. Use double spacing, 12-point Times New Roman
font, and one-inch margins. Sources should be cited according to APA style.