The future value of Home Depot is simply the principle time value of money that is calculated to estimate the demand for future payments demand over the risk free rate of interest. The rate of discount is nothing but the summation of time value of money as proposed by the appropriate rate of interest. This aims towards increasing the nominal value of future returns.
At 8% rate of risk, the company expressed an ideal future value of negative 425.78 million while the company would ideally prefer a value that is positive and above. This is because the company prefers to get a value that is higher than the expected future value of the company in the time span of 5 years. …show more content…
When the risk free rate is reduced to 5%, the company comes up to a future value of -460.69 million. This is lower than what is guaranteed at the present value of 8%. Again, at the risk free rate of 15%, the company has a future value of -359.18 million. In such a scenario, the company would ideally prefer a rate of interest that is causing the present value of the company to increase. The higher the risk, the higher is the rate of interest the company will have to serve and this causes a rise in the present value of the company when it lies in the negative field.
B. How might an issue (negative or positive) within the overall stock market impact Home Depot’s stock valuation numbers, other financial variables, or its overall portfolio management? Be sure your response is supported by