Nike Case

* She is considering the cash flow paid to all the equity or debt holders. So she cannot use the equity cost of capital.

General speaking, WACC is the rate that a company’s shareholders expect to be paid on average to finance its assets, and it is the overall required return on the firm as a whole. Therefore, company directors often use WACC to determine whether a financial decision is feasible or not. In this case, I will choose 9.38% as discount rate. The reason why I choose 9.38% as discount rate is because the estimated Debt/Equity is 26% under the assumptions by CFO Sheila Dowling, which is most close to 25% of Debt/Equity from the projected WACC schedule. There might be some flaws existing by using WACC as discount rate. As we know, the cost of debt would be raised significantly as the leverage increased. The investment will definitely increase the firm’s current debt. So, the cost of debt would not keep at 7.75%.

Over the last 10 years’ gym memberships within the United States have increased from 41.3 million to 54.1 million. The biggest trend over the last few years is becoming fit, more and more each day people are finding ways to live fit and healthier lifestyles. From eating the right nutritional foods, working out and people just wanting to follow the latest and greatest trends. The increase in gym memberships and the amount of people working out leads to the increase in athletic attire. For this exact reason athleisure wear was born, it is the newest fashion trends were people wear athletic clothing regardless if they intend go to the gym or not that day. People are wearing it to the office, shopping, to run errands and other social events. Athleisure wear consist of articles of clothing such as spandex, leggings, yoga pants, sports bras and fashionable sweats. Over the last 10 years an increase in athleisure wear has spread at a rapid rate globally, particularly in the women’s fashion industry. Since 2013 the increase in athleisure wear apparel has grown by 14% and accounts for 18% of the total clothing retail market. With this trend still catching on, active wear is expected to continue to grow at an average rate of 3.3% annually. Due to this rapid increase in purchasing athleisure wear the apparel industry will continue to grow especially Nike because they are the market leaders in active sportswear. For that exact reason I believe that Nike is a

Weighted Average Cost of Capital (WACC) is the combined rate at which a company repays borrowed capital and comes from debit financing and equity capital. WACC can be reduced by cutting debt financing costs, lowering equity costs, and capital restructuring. In order to minimize WACC, companies can issue bonds by lowering the interest rate they offer to investors as well as, cutting down

10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.

WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity)

1. Determine the Weighted Average Cost of Capital (WACC) based on using retained earnings in the capital structure.

Moreover, let’s calculate the Weighted Average Cost of Capital (WACC). And in order to calculate it we need to know the capital structure of the company. Knowing the capital structure of the

For this reason, new, or marginal, costs are used in its calculation. WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing then together. The capital components included in this calculation are a firms after-tax costs of debt, preferred stock, and common stock.

1. Cohen calculated Nike’s weighted average cost of capital (WACC) to be 8.3%. I find error in this calculation as a result of the following points of disagreement:

We valued the company using four different methods; Net Present Value, Internal Rate of Return, Modified Internal Rate of Return and Profitability Index. We began with the Net Present Value, or NPV, calculation. NPV values an investment’s profitability based on the projected future cash inflows and outflows of the investment, discounted back to present value using the WACC. The calculations for NPV are presented in Appendix 2. We started by separating cash inflows and outflows by each year. We used Bob Prescott’s estimates for the revenue per year and related operating costs of cost of goods sold as

On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts ' write-ups of Nike, Inc., the athletic-shoe manufacturer. Nike 's share price had declined significantly from the beginning of the year. Ford was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies, with an emphasis on value investing. Its top holdings included ExxonMobil, General Motors, McDonald 's, 3M, and other large-cap, generally old-economy stocks. While the stock market had declined over the last 18 months, the NorthPoint Large-Cap Fund had performed extremely well. In 2000, the

Kimi Ford is a portfolio manager at NorthPoint Group, a mutual-fund management firm. She is evaluating Nike, Inc. (“Nike”) to potentially buy shares of their stock for the fund she manages, the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies, with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market.

Ms. Ford’s assistant estimated Nike’s cost of capital to be 8.4%. This is based on four main assumptions. First, a single cost of capital for all of Nike’s various business segments will be sufficient, rather than using a business segment specific cost of capital. Seeing as footwear made up 62% of revenues, and that all the significant segments were sport related, the assistant felt that the risk factors were similar for all of the business segments. Next, since Nike was funded through both debt and equity, the WACC was used to calculate the cost of capital. Third, the cost of debt was estimated to be 4.3%. This was calculated by taking the interest expense for the entire year of 2001 and dividing it by Nike’s average debt balance. Tax adjusted, the cost of debt is 2.7%; this uses a tax rate of 38% based on a state tax of 3% and the U.S. statutory tax rate. Lastly, the CAPM was used to estimate the cost of equity. Using the current yield of the 20-year Treasury bond as the risk-free rate, the compound average premium of the market over Treasury bonds as the risk premium, and the average of Nike’s betas from 1996 to 2000 as the beta, Nike’s cost of equity was estimated to be 10.5%.

1. To evaluate the competitive environment in which adidas launched the “mi adidas” pilot I will use the five competitive forces model.