Case Study on Nike

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Case Study Nike
Introduction
Good morning ladies and gentlemen and thank for taking the time to meet with us. Nike was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and Philip Knight. The company officially became Nike, Inc. on May 30, 1978. Nike has various products which include footwear as well as other apparel that compliment the former. This accounts for 92 percent of the company’s revenue. The other 8 percent comes from equipment and non Nike brand products, such as Cole Haan. When we were considering on whether it was more appropriate to use multiple cost of capitals for each segment we believe that they all mostly share similar risk factors. We therefore decided to calculate two different costs of capitals,
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We took this data and ran regressions for each. We found that weekly gave us the most accurate beta under these conditions to use for CAPM. The beta that the regression gave us is .74 EXHIBIT 3. After choosing the beta, we wanted to use both approaches of CAPM to calculate the cost of equity and compare. When using the arithmetic approach, we found that the cost of equity is: 10.97%. When using the geometric approach we found that the cost of equity is: 9.78% EXHIBIT 8 PART 2. We also wanted to include in our analysis finding the cost of equity using the dividend growth model as well as the earnings of capitalization method. When using the dividend growth model we found that the cost of equity is: 6.64% EXHIBIT 9. The earnings of capitalization method gave us 5.51% EXHIBIT 10. Both of these methods DGM and ECM are irrelevant to our analysis of Nike for the reason that given the recent history of Nike we aren’t dealing with a stable better yet mature company, therefore the choosing of those methods would be inaccurate.
Our Recommendation Given that we used an analytical approach to determine if Nike is undervalued or overvalued we wanted to assure our investors that we took diligent steps in determining this. As we mentioned earlier in the report we used two different methods to calculate the WACC. The geometric and the Arithmetic both were higher than Joanna’s but they still prove that the stock is

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