Nike

Case Study: Nike: Cost of Capital 20 September, 2010 1. Do you agree with Joanna Cohens WACC calculation? Why or wherefore not? Our group did not agree with Joannas WACC calculation. We regain that many of the assumptions that she made were incorrect and somewhat altered the level of the WACC calculation. The first piece that we disagreed with was with Joannas estimation of the impartiality of the company. Joanna seemingly utilise the Total Shareholders Equity figure off the balance sheet of Exhibit #2. We feel that she undervalues the truth of the company by using this figure. In our calculation, we multiplied the shares outstanding by the innovative 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 reckon of $3,494.5. We believe that Joanna mistakenly use the book value of equity rather than the market value of eq uity in her WACC calculations. This significantly impacts the equity to debt ratio used in the WACC calculation. It raises the equity parting 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 contribution 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- impoverished value. According to exhibit #4, this was at 5.74%. We felt that this was in addition aggressive and believe that a more buttoned-up auspicate was in order. We did some searching on the cybe rspace and found that a 90- sidereal day Tr! easury tiptop is most a great deal used. riskless parry: 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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