NIKE, INC.: COST OF CAPITAL
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
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statutory tax rate was 35%. The state tax varied yearly from 2.5% to 3.5%.
Sources of data: Company filing with the Securities and Exchange Commission (SEC), UBS Warburg.
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Exhibit 2
NIKE, INC.: COST OF CAPITAL
Discounted Cash Flow Analysis
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Assumptions:
Revenue growth (%) 7.0 6.5 6.5 6.5 6.0 6.0 6.0 6.0 6.0 6.0
COGS/sales (%) 60.0 60.0 59.5 59.5 59.0 59.0 58.5 58.5 58.0
On July 2, 1990, Vanilla Ice announced his new hip-hop single “Ice Ice Baby,” which was also set to be released on his debut album To the Extreme. The opening bass line for his single sounds astonishingly identical to the bass line found in the collaborative work of David Bowie and Queen, titled “Under Pressure,” which was released just under nine years prior on October 26, 1981. Vanilla Ice had not requested to exploit the rights before producing or releasing the song. and by proclaiming that he did the songwriting and production for the rest of the song, Vanilla Ice made himself directly liable for the infringement. The legal counsels of both David Bowie and Queen worked quickly to form a legal team in order sue Vanilla Ice for copyright
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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 fund
Ford has done a significant amount of research through analysts’ reports, which had mixed reviews. She found no clear guidance from the analysts and decided to develop her own discounted cash flow forecast to come to a conclusion. Her forecast showed that Nike was overvalued at its current share price causing a
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