An Investment Analysis Case Study: Home Depot

working #1
Cummula
Investme
year tive Dep.
nt
Assets
0 1000 1000
1 250 1250
2 250 1500
3 150 1650 165
4 153 1803 180
5 156 1959 196
6 159 2118 212
7 162 2280 228
8 166 2446 245
9 169 2615 262
10 172 2787 279
11 176 2963 296
12 179 3142 314
13 - 2142 214
14 - 1892 189
15 - 1642 164
working #2

existing new tax

year unused dep. total dep
capacity project sheild
0 0 0 0 0 0 0
1 55 45.0 0 0.0
2 57.8 42.3 0 0.0
3 60.6 39.4 20.0 165 66.0
4 63.7 36.3 21.0 180 72.1
5 66.9 33.1 22.1 196 78.4
6 70.2 29.8 23.2 212 84.7
7 73.7 26.3 24.3 228 91.2
8 77.4 22.6 586 245 97.8
9 81.3 18.7 58.6 320 128.0
10 58.6 337 134.9
11 58.6 355 142.0
12 58.6 373 149.1
13 58.6 273 109.1
14 58.6 248 99.1
15 58.6 223 89.1
working #3

revenue
No. of total change other
year per CGS G&A WC
stores revenue in wc inflows
share
1
2 280 280 14.2
3 50 40 2000 1600 25 343 63 14.5
4 60 40.8 2448 1958 30.6 408 65 14.8
5 70 41.6 2913 2330 36.4 475 68 15.1
6 80 42.4 3396 2717 42.4 546 70 15.4
7 90 43.3 3897 3117 48.7 618 73 15.7
8 100 44.2 4416 3533 55.2 694 75 16.0
9 110 45.0 4955 3964 61.9 772 78 16.3
10 120 45.9 5514 4411 68.9 853 81 16.6
11 130 46.9 6093 4874 76.2 937 84 17.0
12 140 47.8 6693 5354 83.7 1024 87 17.3
13 150 48.8 7314 5851 91.4 1044 20 17.7
14 150 49.7 7460 5968 93.3 1065 21 18.0
15 150 50.7 7609 6088 95.1 0 -1065 18.4
Working No #4
Advertis
pre ement
Year
furniture with
furniture
1 1020 -
2 1040 -
3 1061 159
4 1082 162
5 1104 166
6 1126 169
7 1149 172
8 1172 176
9 1195 179
10 1219 183
11 1243 187
12 1268 190
13 1294 194
14 1319 198
15 1346 202
Working#5
Compan Total Market Total Equity Unlevere
Year Beta
y Name Debt Cap. Cap. Weight d Beta
Mohawk
1 Industries 1.18 2511.5 16690.9 19202.4 0.87 1.03
, Inc.
Leggett
& Platt,
2 1.1 959.8 6552.1 7511.9 0.87 0.96
Incorpora
ted
Tempur
Sealy
3 1.39 1888.1 2529.1 4417.2 0.57 0.80
Internatio
nal, Inc.
La-Z-Boy
4 Incorpora 1.34 0.59 1386.46 1387.05 1.00 1.34
ted
Ethan
Allen
5 1.28 40.3 797.5 837.8 0.95 1.22
Interiors
Inc.
Flexsteel
6 Industries 1.82 0 412.7 412.7 1.00 1.82
, Inc.
Hooker
Furniture
7 0.86 49 383.6 432.6 0.89 0.76
Corporati
on
Bassett
Furniture
8 1.23 7.11 293.8 300.91 0.98 1.20
Industries
, Inc.
The
Dixie
9 1.18 122.1 54.1 176.2 0.31 0.36
Group,
Inc.
Nova
10 Lifestyle, 0.99 8.03 48.2 56.23 0.86 0.85
Inc.
Live
Ventures
11 1.49 75.5 33.1 108.6 0.30 0.45
Incorpora
ted
Stanley
Furniture
12 1.32 0 11.9 11.9 1.00 1.32
Company
, Inc.

Avg.
1.01
Beta
Levered Beta:
βul βL * E/E+D
1.01 βL * .86
Levered
1.17
Beta(βL)
Capital Structure:

Total Total
176900 28491
Equity Debt

Total
firm`s 205391 Kd 4
value

Debt Equity(
0.14 0.86
(W2) W1)
working No 6
Weighte
Risk
Region Stores Weights d
Premium
Premium
u.s 90 0.60 5.69 3.41
europe 20 0.13 6.81 0.91
asian 30 0.20 7.12 1.42
l.a 10 0.07 10.21 0.68

150 6.43

Ke = Rf + β(Rm-Rf)

Ke 10

WACC 0.0894
Cashflow of Home Depot
years 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
T.revenue - - - 2000 2448 2913 3396 3897 4416 4955 5514 6093 6693 7314 7460 7609
CGS - - - 1600 1958 2330 2717 3117 3533 3964 4411 4874 5354 5851 5968 6088
GP - - - 400 490 583 679 779 883 991 1103 1219 1339 1463 1492 1522
G&A - - - 25 30.6 36.4 42.4 48.7 55.2 61.9 68.9 76.2 83.7 91.4 93.3 95.1
OP - - - 375 459 546 637 731 828 929 1034 1142 1255 1371 1399 1427
Tax - - - 150.0 183.6 218.5 254.7 292.3 331.2 371.6 413.5 456.9 501.9 548.5 559.5 570.7
EAT - - - 225.0 275.4 327.7 382.0 438.4 496.8 557.5 620.3 685.4 752.9 822.8 839.3 856.1
Tax Shield - - - 66 72 78 85 91 98 128 135 142 149 109 99 89
Op
- - - 291.0 347.5 406.1 466.8 529.6 594.7 685.5 755.2 827.4 902.0 931.9 938.4 945.2
cashflow
WC - - 280 343 408 475 546 618 694 772 853 937 1024 1044 1065 0
Change in
280 63 65 68 70 73 75 78 81 84 87 20 21 (1,065)
WC
Invest. 1,000 250 250 150 153 156 159 162 166 169 172 176 179

NCF (1,000) (250) (530) 78.3 129.4 182.5 237.6 294.8 353.2 438.3 502.2 567.4 636.0 911.5 917.5 2,010.0
PVF @
1 0.918 0.843 0.773 0.710 0.652 0.598 0.549 0.504 0.463 0.425 0.390 0.358 0.329 0.302 0.277
8.94%
PVCF (1,000) (229) (447) 61 92 119 142 162 178 203 213 221 228 299 277 556

NPV 1,075
IRR 15%

Avg EBIT 933

AVG Invest. 102696
ROCE 0.009