Case 1 Nike Disscussion Questions 1

Questions for Case 1: (Nike, Inc.)

1. What is the WACC and why is it important to estimate a firm’s cost of capital? Is the WACC set by investors or by managers?
2. Do you agree with Joanna Cohen’s WACC calculation? Why or why not?
3. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike.
4. 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?
5. What should Kimi Ford recommend regarding an investment in Nike?
Questions for Case 15 (Teletech, Inc.)

1. What are Rick Phillips’s arguments for the use of the risk-adjusted hurdle-rate system? What are Buono’s arguments against the system?

2. What are the implications of Phillips’s graph for capital allocation at Teletech (Figure 2 in the case)? Would allocating capital on the basis of the risk-adjusted hurdle-rate system create or destroy value?

3. What are the WACCs of the two segments? Has Products and Systems destroyed value? What about Telecommunications Services?

4. Do you have any other concerns about Teletech’s possible implementation of a risk-adjusted hurdle-rate system?

Discussion Questions for Case 8 (The Body Shop International)

1. Why would a company like The Body Shop want to forecast its financial statements?

2. What are the different methods of financial statement forecast?

3. How much debt financing will The Body Shop need over this forecast period?

4. What are the key drivers of Body Shop’s need for debt financing? How much do debt needs vary as the assumptions vary?

5. What issues does this analysis raise for Roddick?