Case Study Of Nike

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Nike Inc. Cost of Capital Case Study Nike was known Blue Ribbon Sports (BRS) that was found in 1964 by Bill Bowerman and Phil Knight. They came up with the new idea of lighter weight training shoes that had a soft and flexible outsole for fraction in 1971. Nike case background: Kimi Ford, the manager of the North Point Large Cap Fund invested in Fortune 500 companies; Nike started to experience loss, decline in sales growth, decline in share market and profit because of supply chain issue. On June 28, 2001 meeting was held to review the strategy, Nike has estimated that could increases the price on footwear and other multiple segments. There was the signal for Nike’s change from the market. Kimi Ford made her own strategy as discounted cash…show more content…
Nike has a many different segments, 62% of revenue is the main segment which includes 30% in apparel, design for sports activities. Nike sells 4.5% of non-Nike brand, which adds tiny portion of Nike’s revenue. The cost of debt RD, according to the Joanna Cohen’s calculation, she calculates the company’s cost of debt based on previous data, which will not show the Nike’s current cost of debt. According to the financial cost theory, the weighted- average cost of capital (WACC), must reflect the future interest rate because cost of capital based on book value. Cohen did not use the market value for the debt and equity weights; the reason for using the market value is to estimate the future raise of the capital in the company. Cost of equity: By using Dividend Discount Model (DDM), assumption has been made that the company pays a partial dividend but the Nike did not pay any dividend after June 30, 2001. So, they think DDM is not the good method because it does not shows the exact cost of capital. There are advantages and disadvantages of using DDM method, as a advantage DDM are flexible for estimating for the future dividend flow and disadvantages can be company may over reliance on estimated

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