The income statements for Home Depot, Inc. (HD) spanning the period 2006-2008 are found below:
2008
2009
2010
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
a. Calculate the times interest earned ratio for each of the years for which you have data.
b. What is your assessment of how the firm's ability to service its debt obligations has changed over this period?
c. How does the change in debt affect the firm's cost of capital?