Nike inc tries a new strategy to revitalize the company by focusing on top-line growth and operating performance as such, the cost of capital is a critical factor in decision-making and in estimating the weighted average cost of capital (wacc) our analysis will include how wacc is calculated using the capital asset pricing model (capm) to find out if northpoint group should include nike, inc in its portfolio. As of today, nike inc's weighted average cost of capital is 638%nike inc's roic % is 2100% (calculated using ttm income statement data) nike inc generates higher returns on investment than it costs the company to raise the capital needed for that investment. The nike inc cost of capital case study solution contains an 1,100 word answer to the four questions below, a financial analysis in excel that. Cost of capital the cost of capital is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view the shareholder's required return on a portfolio of all the company's existing securities.
As of today, nike inc's weighted average cost of capital is 642% nike inc's roic % is 2100% (calculated using ttm income statement data) nike inc generates higher returns on investment than it costs the company to raise the capital needed for that investment it is earning excess returns. The cost of capital links together many aspects of financial management because shareholder wealth is maximized through the process of arranging financing to minimize the cost of capital and choosing capital investments to maximize net present value by using the cost of capital as the required rate of return. Joanna believed that nike's cost of capital was 84% the central issue to be addressed is: is $4209 per share in nike a reasonable price to buy for northpoint group clients.
Nike inc: cost of capital nike 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. Nike inc cost of capital nike inc was facing substantial financial slumps in the us market during the yester years there were matters of significant concern on the stagnating revenues of the company that for a long time since 1997 had remained at nine billion us dollars. We use your linkedin profile and activity data to personalize ads and to show you more relevant ads you can change your ad preferences anytime. Nike, inc cost of capital nike, inc: cost of capital case 14 kristopher korzi meilin liu paul chen selcuk karahan 03/03/2011 case overview kimi ford is a portfolio manager at a large. Nike inc (nyse: nke) is one of the world's largest apparel and footwear suppliers as of april 2016, the company had a trailing 12-month revenue of $319 billion and a market cap of $100 billion.
The wacc calculation uses the higher of nike's wacc or the risk free rate, because no investment can have a cost of capital that is better than risk free this situation may occur if the beta is negative and nike uses a significant proportion of equity capital. Updated annual cash flow statement for nike inc cl b - including nke operating expenses, operating cash flow, net cash flow, cash dividends, other funds and more j&j snack foods started at. Nike's current beta and cost of capital: since the project is in a new business, the current beta (levered or unlevered) for nike is not relevant and neither is a blended beta of any sort. 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. Represents the weighted average cost of capital (wacc) provides calculation wacc, although it was designed to mislead the students thus, their task is to define and explain the errors in the analysis, which are designed to highlight the conceptual issues concerning the wacc and its components.
Introduces the weighted average cost of capital (wacc) provides a wacc calculation, although it has been intentionally designed to mislead students. Cost of capital on july 5, 2001, kimi ford, a portfolio ma nager at northpoint group, a mutual-fund management firm, pored over analysts' write-ups of nike, inc, the athl etic-shoe manufacturer. You can review the continuation of nike case analysis on my blog (wwwemfpsblogspotcom) in this article, i have depicted below concepts: 1) capital asset pricing model (capm. Apparently, the issue of nike's case is to control and check the calculation cost of capital done by joanna cohen who is the assistant of a portfolio manager at northpoint group. A global community for prospective mba students, and a directory of over 2,000 business schools and counting.
Nike inc: cost of capital (v 18) case solution, represents the weighted average cost of capital (wacc) offers a wacc calculation, although it was intentionally designed to mislead students. Nike, inc 1999 nike annual report as a result of reducing our marketing budget by $100 million and eliminating 7% of our employees, nike's net income has increased for fiscal year 1999 in fiscal year 1998, the company incurred a one-time restructuring charge to better align our overall cost structure and planned revenue levels. Nike, inc: cost of capital case 14 a case brief submitted to submitted by in partial fulfillment of the requirements for date submitted september 28, 2011 summary this case highlights kimi ford, a portfolio manager with northpoint group, a mutual-fund management firm. This technical note the notion of corporate cost of capital it includes material from the the cost of capital corporation and the weighted average cost of capital and introduction to the cost of equity, which covers the topics of the weighted average cost of capital and cost of capital in more detail.
The weighted average cost of capital and its importance for nike inc the weighted average cost of capital (wacc) is the average of the costs of a company's sources of financing-debt and equity, each of which is weighted by its respective use in the given situation. Nike, inc: cost of capital book value vs market value while calculating the nike's cost of capital using both the book value (exhibit 11) and the market value (exhibit 12), i could notice the mistake cohen made finding the equity value.
The cost of nike's capital will have a significant impact on the ability of nike to achieve these growth estimates profitably during kimi ford's discounted-cash-flow analysis of nike share values, she utilizes a cost of capital of 10%with her current analysis, kimi estimates that using a discount rate below 94% shows an undervaluation of. Nike, inc: cost of capital on july 5, 200 i,kimi ford, a portfolio manager al northpoint group, a mutual-fund-management firm, pored over analysts' write-ups of nike, inc, the athletic-shoe manufacturer.