What is your estimate of Ace’s cost of new common stock, ke? What are some potential weaknesses in the procedures used to obtain this estimate?
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
Fall 2009 This case was prepared by Itir Karaesmen and Inbal Yahav of Robert H. Smith School of Business at University of Maryland, College Park. The names, locations, and other information included
Apparently, the issue of Nike’s case is to control and check the calculation cost of capital done by Joanna Cohen who is the assistant of a portfolio manager at NorthPoint Group. But I am willing to tell you that it can be a complex case in which we can doubt about sensitivity analysis done by Kimi Ford (portfolio manager) too. Because her assumptions such as Revenue Growth Rate, COGS / Sales,
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firm Tower Brook Capital Partners. Some strengths of the company are its great pricing and excellent
pledged personal assets, including her family home, to underwrite the company’s loans. Only recently had
Expanding globally is a very serious decision for any corporation. Before making this decision, management should take into consideration the health of the corporation and identify the long term financial goals. In this assignment, I will discuss the importance for the financial managers of Nike Inc. to use economic variables in identifying long term financial goals and the major techniques/tools that the financial managers of Nike Inc. can use for forecasting future directions in the stock market and in the economy as a whole.
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1. Please define Weighted Average Cost of Capital (WACC). Write down the WACC formula, and discuss its components.
3) What is the weighted average cost of capital and why is it important to estimate it? Is the
1. Cohen calculated Nike’s weighted average cost of capital (WACC) to be 8.3%. I find error in this calculation as a result of the following points of disagreement:
Her forecast showed that, at a discount rate of 12%, Nike was overvalued at its current share price of $42.09 (Exhibit 2). However, she had done a quick sensitivity analysis that revealed Nike was undervalued at discount rates below 11.17%. Because she was