1.Weighted Average Cost of Capital (WACC) is used to determine the average cost of financing a company. Companies are funded using both debt and equity and both require varying rates of return. WACC allows you to put a “weight” on the different types of financing and their differing rates to get a total cost of capital.

Team 12 does not agree with Joanna Cohen’s WACC calculation because we feel she took some liberties in her numbers, the most notable being that of equity. Ms. Cohen used book equity, which was $3,494,500,000. Since Nike is a publicly traded company, the stock price should be multiplied by the number of shares outstanding in order to get the true equity of the firm. 271,500,000 multiplied by $42.09, would give you $11,427,435,000 in equity.

In Ms. Cohen’s calculation debt was 27% of total financing and equity was 73%. When using market value for equity those numbers change to 10.2% for debt and 89.8% for equity.

2. Using the following numbers and inputs, our WACC is 9.53%:

To calculate the cost of debt the yield of Nike’s publicly traded debt is utilized:

● N = 40 (semi-annual coupon, 2 x 20)
● PV = $95.60
● PMT = 3.375 (semi-annual coupon, half of 6.75)
● FV = 100 (Amount of debt in future)

Inserting the numbers above in our calculations result in 3.583724 for the I/YR which is multiplied by two to get an annual rate of 7.17%. A tax rate of 38% is applied since the federal rate is 35% and the state rate varies from 2.5% to 3.5%. The debt side of WACC would be as follows:

Kd(1-t) x D/(D+E) 7.17(1-.38) x 1,296.6/(12,724.035) 4.44% x 10.2% = .4529%

We agreed with Ms. Cohen’s results of the CAPM model and used them to calculate the cost of equity. The geometric mean for MRP equaled 5.9%, the average beta for Nike since 1996 was .8, and the 10 year treasury bond for the risk free rate was 5.39%.

Using CAPM, the cost of equity would be as follows:

...Nike, Inc.: Cost of Capital
Case 15
Financial Administration
FINC 5713-180
Team 1
Fall 2013.
October 8, 2013.
Introduction
Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund management firm, is considering to buy some shares from Nike, inc even if it’s share price had declined from the beginning of the year, for the Northpoint Large-cap fund she...

...Introduction
Kimi Ford is a portfolio manager at NorthPoint Group, a mutual-fund management firm. She is evaluating Nike, Inc. (“Nike”) to potentially buy shares of their stock for the fund she manages, the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies, with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market.
Ford has done a...

...this report we focus on Nike's Inc. Cost of Capital and its financial importance for the company and future investors. The management of NikeInc. addresses issues both on top-line growth and operating performance. The company's cost of capital is a critical element in such decisions and it is important to estimate precisely the weighted average cost of capital...

...Nike, Inc.: Cost of Capital
1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not?
The WACC of a firm is the overall required return on the firm as whole. It is the discount rate to use for cash flows with risk that is similar to the overall firm. The WACC lets you see how much interest the company has to pay for...

...NikeInc.: Cost of Capital
The Weighted Average Cost of Capital (WACC) is the overall required rate of return on a firm as a whole. It is important to calculate a firm’s cost of capital in order to determine the feasibility of a particular investment for a firm.
I do not agree with Joanna Cohen’s WACC calculation. She calculated value of equity, value of debt,...

...NikeInc: Cost of CapitalNike was founded in 1964 and was formerly known as Blue Ribbon Sports. Track star Bill Bowerman and his coach Philip Knight created Blue Ribbon Sports which later became Nike in 1978. The name Nike comes from the Greek Goddess of victory. In 1966 the first retail store was opened in Santa Monica, Ca. By 1980, Nike had reached 50 percent of market share...

...Case Study –Nike, Inc.: Cost of Capital
FIN202a-Spring 2011
1. Please define Weighted Average Cost of Capital (WACC). Write down the WACC formula, and discuss its components.
WACC (Weighted Average Cost of Capital) is a market weighted average, at target leverage, of the cost of after tax debt and equity.
It is a critical input for evaluating investment...

...I. Introduction
Kimi Ford, a portfolio manager for the mutual-fund management group NorthPoint, was reviewing the financials of NikeInc. to consider buying shares for the NorthPoint Large-Cap Fund that she managed. A week prior, NikeInc. held an analysts’ meeting to share their 2001 fiscal results and develop a strategy to revitalize the company.
II. Background of Firm
Nike’s revenues since 1997 had grown from $9 billion, while...

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