Nike, Inc.: Cost of Capital

Nike, Inc.: price of Capital Case Analysis I. Problem assertion Nike, Inc. is a study publicly traded clothing, footwear, sportswear, and equipment supplier based in the United States. Since Nikes share expenditure has declined significantly from the ancestry of 2011, the portfolio manager, Kimi Ford, has to find protrude the intrinsic value of the Nikes oc real gestate price to decide whether she could invest on this stock or not. She estimated that if the take return on this stock were at a lower place 11.17%, the stock would be current undervalued. Her champion gave her the WACC of Nike is 8.4%, which is a result of an inappropriate calculation. Hence, the fuss in front of Kimi is to find out the WACC that can almost fittingly reflect Nikes current value. II. WACC Calculation Analysis 1. price of debt. The assistant calculated embody of debt by dividing interest piece down in 2001 to the average debt amount of 2001 and 2002. Thats a fashio n to get average interest rate. However, if the company had issued debt in the quondam(prenominal) and the bond is publicly traded, the current yield to maturity (YTM) on the bond will be the best estimate for represent of debt. Based on the exhibit 4, current yield on publicly traded Nike debt, I calculated the be of debt as infra (also see Appendix A 1 for detail): PV=-95.6, FV=100, N=50, PMT=3.38? I/Y=3.

56% Since the payment was paid semi-annually, we can compute 3.57% by 2 to get the cost of debt (YTM), which is 7.13% . 2. Cost of lawfulness. For this originate of calculation, I would say I agree with the a! ssistants estimation. employ the 20-year T-Bond yield as the peril-free rate, the average of import of ult 6 years, and the geometric mean of historical risk support in the CAPM model equation to get the cost of righteousness (see Appendix A 1 for detail). CAPM = Rf + ?*RP = 5.74% + 0.8 * 5.90% = 10.46% 3. incubus of debt and equity. The assistant used the book value of both essential equity and debt on...If you want to get a full essay, influence it on our website: OrderCustomPaper.com

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