Nike

1217 Words May 27th, 2015 5 Pages
13/3/2013

Nike, Inc.
Cost of Capital

1

Discussion Questions
• What is the WACC and why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers?
• Do you agree with Joanna Cohen’s WACC calculation? Why or why not? If you do not agree with Cohen’s analysis, calculate your own
WACC for Nike and be prepared to justify your assumptions. What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating the cost of equity?
• Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method?
• What should Kimi Ford recommend regarding an
…show more content…
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%

58.0%

S&A (% sales)

28.0%

27.5%

27.0%

26.5%

26.0%

25.5%

25.0%

25.0%

25.0%

25.0%

Operating Expenses

88.0%

87.5%

86.5%

86.0%

85.0%

84.5%

83.5%

83.5%

83.0%

83.0%

Tax Rate

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

38.0%

11.5%

11.5%

11.5%

11.5%

11.5%

11.5%

11.5%

11.5%

11.5%

11.5%

Current Assets
(% sales)
Current Liabilities
(% sales)
WACC

10.83%

Terminal Growth Rate

3%

Cost of debt

7.17%

Cost of equity

11.54%

Outstanding Shares

271.5

11

DCF - Free Cash Flow Growth Method
Discounted Cash Flow Calculations
(In Millions)
Revenue

2002
10,153.0

2003
10,813.0

2004
11,515.8

Operating Income

1,218.4

1,351.6

1,554.6

Taxes

463.0

513.6

590.8

2005
12,264.3

2006
13,000.2

2007
13,780.2

2008
14,607.0

2009
15,483.4

2010
16,412.4

2011
17,397.2

1717

1950

2,135.9

2,410.2

2,554.8

2,790.1

2,957.5

652.5

741.0

811.7

915.9

970.8

1,060.2

1,123.9

NOPAT

755.4

More about Nike

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