Nike, Inc.: Cost of Capital

Nike, Inc.: price of Capital Case Analysis I. Problem direction 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 base of 2011, the portfolio manager, Kimi Ford, has to find protrude the intrinsic value of the Nikes incumbent 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 real 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. court of debt. The assistant calculated embody of debt by dividing interest entrap down in 2001 to the average debt amount of 2001 and 2002. Thats a fashion 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 address of debt. Based on the exhibit 4, current yield on publicly traded Nike debt, I calculated the hail of debt as at a lower place (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 cipher 3.57% by 2 to get the cost of debt (YTM), which is 7.13% . 2. Cost of lawfulness. For this expo se of calculation, I would say I agree with ! the assistants estimation. employ the 20-year T-Bond yield as the happen-free rate, the average beta 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. weighting of debt and equity. The assistant used the book value of both make out equity and debt on...If you want to get a full essay, graze it on our website: OrderCustomPaper.com

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