Frl 440 Nike Inc UPDATE Study Paper

Nike Inc.

Cost of Captial

Michael Tjandra

Anna

Ellie Du

Qualifications of Nike and North - Stage

Nike

North-Point

Revenue $9 Billion via 1997

Mutual Fund Managing Firm

Net gain fallen from $800

Million to $580 Million

Invests in fortune 500

companies

Market Share fallen coming from 48%

(1997) to 42% (2000)

For end of June 2001, fund's yr

to date results tops at 6. 4%

Long term income targeted at

8-10%

Funds performed extremely well

Earning growth is definitely targeted at

15%

The wall street game in decrease for

1 . 5 years

Adverse a result of strong buck

had unwanted effects on revenue

Nike Inc. BackGround

пЃЅ

Headquarters: Beaverton Oregon

Founded January twenty-five, 1964

пЃЅ

Since 1997

пЃЅ

в—¦ Net gain has fallen from hundreds of dollars million to $580

million

в—¦ Revenue tops about $9 , 000, 000

пЃЅ

Industry shares in U. S i9000 athletic shoes straight down

в—¦ 48% in 1997

в—¦ 42% in 2k

Case Qualifications

в—Џ NorthPoint Large Hat Fund deciding whether to get

Nike's stock.

в—Џ Nike experienced product sales growth drop.

в—Џ Nike has reveal that it could increase publicity in

shoes or boots and apparel lines. It also commits to cut down

expenditures.

в—Џ Permanent revenue expansion target 8%-10%

в—Џ Getting growth concentrate on 15%

в—Џ The market responded mixed indicators to Nike's

changes.

в—Џ Kimi Kia, portfolio director for NorthPoint Large

Cover Fund, has done a cashflow estimation.

в—Џ Is Nike stock well worth investing?

в—Џ Ask her assistant, Joanna Cohen to estimate expense

of capital

в—Џ Lehman Brothers advised to invest

в—Џ UBS Warburg/ CSFB advised not to invest

What is WACC?

пЃЅ WACC methodology is used to price cut future funds flows permitting us to use the information intended for present decisions that will benefit the company down the road.

пЃЅ WACC is believed using present and previous information, therefore it varies with respect to the information being utilized

пЃЅ WACC set by investors and market

в—¦ Not simply by Managers

пЃЅ The approximated WACC sets the least sum of results that the trader needs in order to either make your money back or have income.

Analysis

пЃЅ

Considering the fact that

в—¦ Discount charge 12% sama dengan stock selling price overvalued

в—¦ Discount level 11. 17% = share price undervalued

Joanna's expense of capital of Nike sama dengan 8. 4%

пЃЅ REVIEW OURS

пЃЅ

Cohen's Mistakes

Weights of Debt and Equity

пЃЅ Cost of Personal debt

пЃЅ Cost Equity

пЃЅ

Single or Multiple Cost

пЃЅ

One cost is favored for this examination due

to all or any segments inside the company come under

similar risk therefor one cost of capital will

suffice.

DEBT/EQUITY RATE

MARKET VALUE OF EQUITY

TOTAL DEBT (EXHIBIT 3& 4)

SHARES EXCELLENT

271. your five

5. four

MARKET SHARE VALUE

42. 2009

CURRENT LONG-TERM

DEBT

THEIR MARKET VALUE OF

FAIRNESS

11427. 4

3

NOTES PAYABLE

855. 3

LONG TERM DEBT

435. 9

REDEEM PREFERRED

SHARE

0. a few

TOTAL FINANCIAL DEBT

$1296.

80

VALUE OF THE FIRM sama dengan TOTAL DEBT + TOTAL

EQUITY

WORTH OF THE COMPANY

$12724. 33

WEIGHT OF DEBT

zero. 1019

POUNDS OF VALUE

0. 8981

Cost of Financial debt

пЃЅ

пЃЅ

пЃЅ

Is it doesn't the total amount interesting paid by company about all financial obligations.

Two Types

Coupon Rate

6th. 75% Partial –

Exhibit 4

Each year

Issued

7/15/96

Maturity ( 25 yrs)

7/15/21

Current Price

$95. 60

Equiparable Value

$22.99

Before Duty Cost of

Debts

7. 13%

After Taxes Cost of

Debt

4. 42%

Cost of Value

пЃЅ

Expense of equity may be the required level or go back

by investors in order for the investor to

continue keeping shares while using company

в—¦ CAPM Version

в—¦ Dividend Discount Style

в—¦ Earning Capitalization Style

CAPM VERSION

пЃЅ

An auto dvd unit that details the relationship between risk and expected return and that is used in the charges of high-risk securities.

пЃЅ

Method that uses the partnership of marketplace risk, methodical risk and risk free rate to determine the bare minimum expected come back on a security

Exhibit 4

Risk Free rate

5. 74%

Return out there (geometric)

a few. 90%

Beta (2001)

0. 69

Lso are = Rf+ОІ(Rm-Rf)

Re sama dengan 5. 74%...



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