Nike

Case Study: Nike: Cost of Capital 20 September, 2010 1. Do you agree with Joanna Cohens WACC calculation? Why or why not? Our group did not agree with Joannas WACC calculation. We call back that many of the assumptions that she made were incorrect and somewhat altered the commove of the WACC calculation. The first piece that we disagreed with was with Joannas estimation of the impartiality of the company. Joanna apparently utilise the Total Shareholders Equity figure off the property sheet of Exhibit #2. We feel that she undervalues the fair play of the company by using this figure. In our calculation, we multiplied the shares outstanding by the spic-and-span market price of the stock. Our equity figure came out to (271.5 x $42.09) $11,427.4. This is significantly more than Joannas book value go through of $3,494.5. We believe that Joanna mistakenly apply the book value of equity rather than the mark et value of equity in her WACC calculations. This significantly impacts the equity to debt ratio used in the WACC calculation. It raises the equity utterance of total capital from 73% to 90%. We agreed with Joannas debt figure of $1,296.6.

Due to the change in equity, the debit plowshare of total capital was reduced from 27% to 10%. Joanna used the current yield on the 20-year exchequer bond as her risk of exposure- uncaring cast. According to exhibit #4, this was at 5.74%. We felt that this was in addition aggressive and believe that a more hidebound auspicate was in order. We did some searching on the lucre and found that a 90- sidereal day Treasury government note! is most a great deal used. riskless drive home: The risk-free rate is a theoretical invade rate at which an investment may earn come to without subject any risk. In practice, the risk-free rate is often a short-term Treasury rate (i.e., 90 Day Treasury Bill). We selected the 90-day Treasury bond rate of 3.59% as our risk free rate. This figure was obtained from exhibit #4. This new risk-free...If you want to stick a full essay, order it on our website: BestEssayCheap.com

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