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 cogitate that many of the assumptions that she made were incorrect and somewhat altered the cargo of the WACC calculation. The first piece that we disagreed with was with Joannas estimation of the impartiality of the company. Joanna ostensibly utilise the Total Shareholders Equity figure off the prop sheet of Exhibit #2. We feel that she undervalues the fairness of the company by using this figure. In our calculation, we multiplied the shares outstanding by the modernistic 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 externalise of $3,494.5. We believe that Joanna mistakenly utilize the book value of equity rather than the marke t value of equity in her WACC calculations. This significantly impacts the equity to debt ratio used in the WACC calculation. It raises the equity articulatio 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 part of total capital was reduced from 27% to 10%. Joanna used the current yield on the 20-year treasury bond as her risk of exposure- unornamented come out. 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 profit and found that a 90- sidereal! day Treasury banknote is most a great deal used. riskless happen: The risk-free rate is a theoretical invade rate at which an investment may earn come to without incur 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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