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How does the change in debt affect the firm cost of capital

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Reference no: EM132558293

The income statements for Home Depot, Inc. (HD) spanning the period 2014-2016 are found below:

                                                                   2014                 2015                        2016

Earnings before interest and taxes       $7,316,000     $9,700,000            $9,425,000

Interest expense                              (696,000)          (392,000)             (143,000)

Income before tax                            $6,620,000          $9,308,000            $9,282,000

Income tax expense                            (2,410,000)             (3,547,000)       (3,444,000)

Net Income                                       $4,210,000                 $5,761,000              $5,838,000

Question a. Calculate the times interest earned ratio for each of the years for which you have data. What does this ratio tell you about Home Depot?

Question b. What is your assessment of how the firm's ability to service its debt obligations has changed over this period?

Question c. How does the change in debt affect the firm's cost of capital?

Question d. What are some other things that might impact your assessment?

Reference no: EM132558293

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