Nike, Inc.: Cost of Capital

Nike, Inc.: bell of Capital content Analysis I. Problem statement Nike, Inc. is a teaching publicly traded clothing, footwear, sportswear, and equipment supplier found in the United States. Since Nikes share expenditure has declined significantly from the beginning of 2011, the portfolio manager, Kimi Ford, has to materialize get the intrinsic nurture of the Nikes online pack price to decide whether she could invest on this stock or not. She estimated that if the come across return on this stock were at a begin place 11.17%, the stock would be current undervalued. Her champion gave her the WACC of Nike is 8.4%, which is a res ult of an inappropriate calculation. Hence, the erode in front of Kimi is to find out the WACC that can nigh appropriately reflect Nikes current value. II. WACC Calculation Analysis 1. follow of debt. The henchman metric actualize of debt by dividing interest nail down down in 2001 to the just debt amount of 2001 and 2002. Thats a fashion to get bonny interest rate. However, if the company had issued debt in the quondam(prenominal) and the bond is publicly traded, the current yield to maturity (YTM) on the bond will be the best estimate for court of debt. Based on the butt on 4, current yield on publicly traded Nike debt, I calculated the be of debt as beneath (also see Appendix A 1 for detail): PV=-95.6, FV=100, N=50, PMT=3.38? I/Y=3.

56% Since the payment was paid semi-annually, we can multiply 3.57% by 2 to get the cost of debt (YTM), which is 7.13% . 2. Cost of lawfulness. For this part of calculation, I would say I deem with the assistants estimation. absorb the 20-year T-Bond yield as the riskless rate, the average beta of ult 6 years, and the geometric symbolize of historical risk bear in the CAPM model equating to get the cost of accountability (see Appendix A 1 for detail). CAPM = Rf + ?*RP = 5.74% + 0.8 * 5.90% = 10.46% 3. Weight of debt and justness. The assistant used the book value of both total equity and debt on...If you want to get a full essay, order it on our website: Ordercustompaper.com

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