Question: Valuation Grid and Reverse Engineering for Home Depot, Inc. (Medium) a. Using the information in Exercise 14.13, calculate the implied growth rate in residual operating

Valuation Grid and Reverse Engineering for Home Depot, Inc. (Medium)

a. Using the information in Exercise 14.13, calculate the implied growth rate in residual operating income that is implicit in the market price of $42 per share.

b. If you forecast that the growth rate in residual earnings after fiscal year 2006 will be the GDP growth rate of 4 percent, what is the expected return to buying the stock at $42?

c. Prepare a valuation grid showing what the stock is worth for alternative forecasts of return on net operating assets and growth in net operating assets.

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