Nike Case: an Investment Paper

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Nike Case: An Investment Paper Time Context Nike generated $ 2.45 billion in operating income on revenues of $ 19 billion in the fiscal year ended in May 2009. However, its stock price has stagnated or became inactive for the last two years and its future sales and earnings are likely to be adversely affected by increased competition from both established firms (like Reebok and Adidas) and upstarts (such as Underarmour). This business problem made Nike to consider an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults. Viewpoint The business problem involves financial matter. The investment to fashion apparel business is considered a financial problem. This must be…show more content…
Having more income generated through cash received in excess of the cost of producing that income connotes the feasibility of the investment. 4. If the project is terminated at the end of the 12th year, and both working capital and investment in other assets can be sold for book value at the end of that year, the internal rate of return should be equal to 10.06% and the net present value profile of this project to Nike should be as follows: 5. If the apparel division is expected to have a life much longer than 12 years, the internal rate of return should be 10.03% and the net present value profile of this project to Nike should be as follows: Final Decision The operating income of the investment, as well as cash flows, may not be enough to prove its feasibility. The average return on capital percentage may be considered as a low percentage and it can be linked to the dropping stock price as a reflection of stockholders’ confidence in the company. However, the project for expansion is feasible and profitable, based on the data supplied. The investment on expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults is accepted. Detailed Action Plan |ACTION |ACTIVE OFFICER |BUDGET |
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