Case Study –Nike, Inc.: Cost of Capital Essay

The weighted average cost of capital (WACC) is one of the most important figures in assessing a company’s financial health as it gives an insight into the cost of the financing, can be used as a hurdle rate for investment decisions, and acts as a measure to be minimized to find the best capital structure for the company (QFinance the Ultimate Financial Resource, 2011).   The WACC for the high-tech alternative is 9.056% and represents the rate of return that the investors of Guillermo Furniture require, weighted according to the proportion each element of debt and equity bear to the total pool of capital.   The Guillermo weighted mix of financing is 40% debt and 60% equity. This alternative produces a 12% return on equity, so with the WACC of 9.056%, it creates almost 3% additional value for its investors.

So in order for the company to make a smart decision, they would have to use the WACC (weighted average cost of capital) in order to determine which way they would go about raising that additional capital, whether it be equity (shares of stocks) or debt (a bond issue).

In order to find the WACC, we need to find the cost of the components of the capital structure and their proportion in the total capital.

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

WACC = cost of debt + cost of equity (weighted by the % of debt/equity in the capital stack)

This assignment will calculate the Weighted Average Cost of Capital of AGL Energy Ltd and gearing, as well as analysing the capital structure of the company. Through this, recommendations can be given to the firm to increase and better manage capital and how it is used. The Weighted Average Cost of Capital (WACC) is a calculation of a firm 's cost of capital. It is the average costs of debt and equity financing, each of which is weighted by its proportional

S &A / Sales, Current Assets / Sales, and Current Liability / Sales have been adopted from previous income statements and balance sheets from 1995 to 2001. Perhaps, we can take new assumptions. Generally, the case issue is to examine if the share price of Nike is undervalue or overvalue and the common stock of Nike Inc should be added to the North

Compute the current weighted average cost of capital (WACC) for Home Depot using Eq. 14.6 given their current debt-to-equity ratio.

debt-to-equity ratio to find a cost of equity of 17.12%. Next, we apply the CAPM using the 10-year Treasury for

3. Calculate the cost of equity capital using the CAPM, assuming a market risk premium of 5%.

The dividend discount model (DDM) is a procedure for valuing the price of a stock by using the predicted dividends and discounting them back to the present value. If the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued. Therefor DDM is the key valuation technique for dividend stocks and the DCFA put simply, state that the present value of a company is equal to the sum value for all the future cash flows that the company going to

We must then calculate the CAPM for the cost of equity (see Excel sheet for details):

Analyzing above table, it seems that weighted average cost of debt using book value, the weights are 2.76 percent, and using market value, the weights are 2.69 percent. It seems irrelevant whether we use book or market values to calculate the cost of debt for Dell, which means it would not make a difference whether the book or market values were used because they are the approximately the same, and yields almost the same cost of debt.

WACC = (% of equity x cost of equity) + (% of debt x cost of debt) x (1-Corp

Weighted Average Cost of Capital (WACC) is a fiscal barometer to gauge a business cost of capital. In this sense, the WACC supplies at discount