Place yourself in the position of an executive manager (e.g., CEO, CFO, or COO) of The Home Depot. Further assume that you and your colleagues believe that it is time to further expand the company by way of new store locations. It is estimated that the cost of this expansion will be approximately $200 million. Of course, one of the key points of your discussion is the means by which the necessary funds will be raised.
The questions that appear below have arisen during a meeting among you and your colleagues. How would you respond to these questions?
1. What are the advantages and disadvantages to our company of financing the expansion by issuing bonds? By issuing common stock?
2. In the current economic climate, is it appropriate for us to be considering this expansion? In other words, would such an expansion be in the best interest of our stockholders? Why or why not?