Nike Case Solution Essay

1264 Words Jan 31st, 2012 6 Pages
Topic: Nike Inc.: Cost of Capital Course: International Finance

Table of Contents 1 Background Information on the Case: 3 1.1 Nike’s Performance: 3 1.2 Nike Analysts Meeting June 28, 2001: 3 2 Kimi Ford’s Evaluation of Nike: 3 3 Joanna Cohen’s Calculation of Nike’s Cost of Capital: 3 3.1 Assumptions & Calculations: 3 4 Our Calculation: 4 4.1 Cost of common equity 4 4.2 Cost of debt 4 4.3 Weights of Debt and Equity 4 4.4 WACC 5 4.5 Equity Value of Share 5 5 Conclusion: 6

Background Information on the Case:
Kimi Ford is a portfolio manager for the mutual-fund management firm NorthPoint Group. She is considering buying some shares for a fund she is managing, the NorthPoint Large-Cap Fund
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She justified this lower rate as compared to the Treasury yield as Nike raised a portion of funding through Japanese yen notes, which carry rates between 2.0% and 4.3%. After tax the cost of debt is 2.7% (tax assumed as 38%; 35% U.S. statutory tax rate and state tax of 3%). 5) Cost of Equity was calculated using CAPM method since it is a superior method. She estimated it at 10.5%. Her calculation is based on the current yield on 20-year Treasury bond as…

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