Nike

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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

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