Access the March 24, 2016, filing of the 10-K report of Home Depot for the year ended January 31, 2016, from SEC.gov (ticker: HD). Refer to Home Depot’s balance sheet, including its note 6 (on debt).
Required
1. Identify Home Depot’s long-term liabilities and the amounts for those liabilities from Home Depot’s balance sheet at January 31, 2016.
2. Review Home Depot’s note 6. The note reports that as of January 31, 2016, it had $2.964 billion of “5.875% Senior Notes; due December 16, 2036; interest payable semiannually on June 16 and December 16.” These notes have a face value of $3.0 billion and were originally issued at $2.958 billion.
🔒
Unlock the complete assignment
You are viewing the free preview. Purchase this assignment once to reveal the complete resource.
$9.99 USD
Secure checkout is completed by Stripe.
a. Why would Home Depot issue $3.0 billion of its notes for only $2.958 billion?
b. How much cash interest must Home Depot pay each June 16 and December 16 on these notes?
SOLUTION
1. Home Depot’s long-term liabilities as of January 31, 2016,follow:
Long-term debt, excluding current installments
$20,888 million
Other long-term liabilities
1,965 million
Deferred income taxes
854 million
2 a.
These Home Depot notes offer a 5.875% interest rate. If the interest rate for similar notes from companies with similar risk was 5.875%, then Home Depot would have issued these notes at their par value of $3.0 billion. However, since these notes were issued at a discount, the interest rate for similar notes at similar risk must have been greater than 5.875%, causing the notes to have been issued at a discount.