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• Cost of debt. over-looked mid-price range, pushing their apparel line, and improving their cost control. Market Value of Equity (E) Calculation: E = Stock Price x Number of Shares Outstanding = $42. The market responded mixed signals to Nikes changes. Here, at ACaseStudy.com, we deliver professionally written papers, and the best grades for you from your professors are guaranteed! This is an approximation for the true cost of the debt, but is too inaccurate. Nike is a public company, and its market capitalization is a more relevant metric for equity than the book value of equity. But I am willing to tell you that it can be a complex case in which we can doubt about sensitivity analysis done by Kimi Ford (portfolio manager) too. Nike's Cost of Capital Case Study - Case 14 Nike Inc Cost of Capital Recapitulation of The cases Highlights Kimi Ford a portfolio manager at NorthPoint, 59 out of 60 people found this document helpful, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, is, considering whether to invest in some of Nike’s shares and add to them to their Large, Cap Fund. 50). Robert F. Bruner; Jessica Chan Harvard Business Review (UV0010-PDF-ENG) October 10, 2001. 98 = 10. I assumed Nike Inc. to have a single cost of capital since its multiple business segments (shoes, apparel, sports equipment, etc.) WACC 75% coupon semi-annually. 1 |Case analysis: Nike Inc, Cost of Capital. Case Study –Nike, Inc.:Cost of Capital FIN202a-Spring 2011 1. Having performed a DCF forecast, Ford tasked, her assistant Joanna,Cohen with finding an estimate for WACC. It means that North Point Group should sell the purchased shares of Nike during the period of one year. 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.. Cost of equity – CAPM model (Capital asset pricing model) = 9.81% Joanna Cohen's Analysis Joanna Cohen’s Analysis One at a Time Please New assistant to Kimi Ford Completes analysis base on book values Joanna analysis based on book values Nike capital sources (debt + equity) The market responded mixed signals to Nikes changes. 59% because the yield curve is upward sloping. 84 Using these figures, we can now find the market value of Nike Inc. and the company’s capital structure. How about receiving a customized one? The Weighted Average Cost of Capital is the interest rate (minimal return) at which investor-supplied capital (equity and interest bearing loans) has been provided. Begin slowly - underline the details and sketch out the business case study description map. Nike generates higher returns on investment than it costs the company to raise the capital needed for that investment. They came up with the new idea of lighter weight training shoes that had a soft and flexible outsole for fraction in 1971. Introduces the weighted average cost of capital (WACC). By continuing we’ll assume you board with our, Cost of Capital, Capital Budgeting and Financial Planning, The Capital Structure Decision and the Cost of Capital, Analysis of Nike by Porter Five Forces Model, How to secure financing as a small business owner, How to Make a Business Plan for Any Business, 7 Crucial Macro Environment Factors to Include in Your Analysis, Macro Environment Examples in the Real World. Nike has reveal that it would increase exposure in mid-price footwear and apparel lines. 97% Cost of Debt Cost of debt was calculated by finding the yield to maturity on 20-year Nike Inc. debt with a 6. Case questions answered: What is the WACC and why is it important to estimate a firm’s cost of capital? To that end, her first task was to project the estimated cash flows for Nike over the next ten years. Cost of Capital and WACC-Final, University of Louisiana, Lafayette • FINANCE 300, West Virginia State University • FINANCE MISC. 54 *435. Since 1997, Nike’s revenues have been stagnant around $9 billion, while their net income has significantly decrease from $795 million in 1997 to $590, million in 2001, or by a rate of almost 35%. 44 This figure is should be used for market value of equity (E) rather than Joanna Cohen figure ($3,494. To write an emphatic case study analysis and provide pragmatic and actionable solutions, you must have a strong grasps of the facts and the central problem of the HBR case study. The company is dealing in different segments which are very much similar Nike Inc Cost Of Capital Case Study Solution Author: download.truyenyy.com-2020-12-04T00:00:00+00:01 Subject: Nike Inc Cost Of Capital Case Study Solution Keywords: nike, inc, cost, of, capital, case, study, solution Created Date: 12/4/2020 8:10:48 PM 9 X 5. GRAB THE BEST PAPER We use cookies to create the best experience for you. Conclusion After discounting cash flows provided in Exhibit 2 with the calculated WACC of 9.27%, the PV equals $58.13 per share, which is more than current market price of $42.09 and it is in our opinion that Kimi Ford buy stock in Nike, Inc. because it is undervalued. Nike has experienced sales growth decline, declines in profits and market share. - Nike had experienced a negative year: decline in sales growth, declines in profits and market share due to bad effect of supply-chain issue and the adverse effect of a strong dollar. It’s the opportunity cost of all capital invested in a, firm instead of being invested in another investment opportunity with a similar systematic, It is computed as average from the corresponding, costs of debt and equity and their relative percentage in, the capital structure of the firm. The cost of capital is the rate of return that a firm must earn on the projects in which it invests to maintain the market value of its stock. Cost of Capital Case Study Nike was known Blue Ribbon Sports (BRS) that was found in 1964 by Bill Bowerman and Phil Knight. An essay about school uniforms an essay about school uniforms. Nike, Inc.: Cost of Capital On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts’ write-ups of Nike, Inc., the athletic-shoe man-ufacturer. Present value: - … 06% Market Value of Debt (D) Calculation: D = Current LT + Notes Payable + LT Debt (discounted) = $5. Step 2 - Reading the Nike, Inc.: Cost of Capital (v. 1.8) HBR Case Study . What does it represent? Download & View Case Study Nike, Inc. - Cost Of Capital as PDF for free. 58% -Method (2): Based on calculating the IRR Cost of Debt = 14. The interest was sparked by a recent deterioration in Nike’s stock price since the beginning of 2001. Step 2 - Reading the Nike, Inc.: Cost of Capital (v. 1.8) HBR Case Study . Management of Nike changed long term growth rates of revenues from 8% to 10%, and, earnings growth targets of above 15%. Nike, Inc.: Cost of Capital Case Background: NorthPoint Large Cap Fund weighing whether to buy Nikes stock. Now, let me approve Kimi Ford’s analysis and tell you only the mistakes of Joanna Cohen. are not very different and would experience similar risks and betas. Case 15 -Nike, Inc.: Cost of Capital Joanna Cohen was tasked with determining the value of Nike, Inc. in order to determine whether or not she should recommend that her firm invest in Nike. 53% All of the calculations have been included in my spreadsheet. 15% -Method (3): Approximating the Cost Based on the Value Bond and Coupon Rate Cost of Debt = 7. Nike, Inc.: Cost of Capital On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts’ write-ups of Nike, Inc., the athletic-shoe man-ufacturer. The environmental disaster was Hurricane Katrina which was caused the huge destruction across the south-eastern United States. Cohen calculated a weighted average cost of capital (WACC) of 8. Robert F. Bruner; Jessica Chan Harvard Business Review (UV0010-PDF-ENG) October 10, 2001. Jedyne takie wydarzenie w Polsce poświęcone tym tajemniczym Ptakom In fact, by short term financing, the manager can use cheaper cost of equity. Do, you agree with Joanna Cohen’s WACC calculation? 54/$12,701. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and justify your assumptions. 21 / 22 marca. 5 = $11,427. 1 |Case analysis: Nike Inc, Cost of Capital. Nike has reveal that it would increase exposure in mid-price footwear and apparel lines. Provides a WACC calculation, although it has been intentionally designed to mislead students. Case 14. 5 months) = 6. 4 percent by using the Capital Asset Pricing Model (CAPM) for Nike Inc.I do not agree with Joanna Cohen because of below mentioned: -In the field of Equity’s Cost: O She should use current yields on US Treasuries 3 to 12 months at 3. 44/ 12,701. Weighted Average Costs of Capital (WACC) is an essential estimation that is needed in order to determine the amount of interest that will be paid for each additional dollar financed. Each report should have a cover page that contains the following – the names of Nike, Inc.: Cost of Capital Recapitulation of The case’s Highlights Kimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, is considering whether to invest in some of Nike’s shares and add to them to their Large Cap Fund. Nike's share price had declined significantly from the beginning of the year. 30 + $413. This preview shows page 1 - 2 out of 5 pages. Nike Wacc Case Study just from $13,9 / page. Nike’s share price had declined significantly from the beginning of the year. Nike Inc. Case Number 2 Nike Incorporated’s cost of capital is a vital element when addressing opportunities regarding top-line growth and operating performance. 113316907-Case-Study-Nike-Inc-Cost-of-Capital, Nike, Inc. Words: 1,838; Pages: 6; Preview; Full text; Nike, Inc.: Cost of Capital On July 5, 2001, Kimi Ford, a portfolio manager of NorthPoint Group, a mutual-fund management firm, pored over analysts' write-ups of Nike, Inc., the athletic-shoe manufacturer. To calculate the cost of debt, Cohen simply divides the interest expense by the average balance of the interest-bearing debt. 84 = $1,274. It is an extremely important number for both corporations and usually financials advisors. O In the case of value of equity, Cohen’s should use liquidation value in calculating value of equity.Liquidation value per share is more realistic than book value because it is based on the current market value of the firm’s assets by using of balance sheet data. 03% Weight of Equity (WE) WE = E/ D +E WE = 11,427. Case Studies. An Investment Analysis Case Study: Nike This case is a group project that is due on March 28 just before class begins at 10.30. Format: Each group will turn in one report (sounds obvious, but might as well make it explicit). capital, cost of debt, and cost of equity; while the estimation of cost of capital was 8.4% by using CAPM (capital-asset-pricing-model). What Is the Macro Environment in Business Analysis? Nike, Inc.: Cost of Capital (v. 1.8) case study allows students to find mistakes in a misleading WACC calculation. Why or why not, The minimum rate of return the company must earn on its existing assets to meet the, expectations of its capital providers. Introducing Textbook Solutions. This can be calculated by considering the interest rate offered for the bonds issued by Nike Inc. from Exhibit 4. It also commits to cut down expenses. The cost of capital is the rate of return that a firm must earn on the projects in which it invests to maintain the market value of its stock. Because her assumptions such as Revenue Growth Rate, COGS / Sales, S / Sales, Current Assets / Sales, and Current Liability / Sales have been adopted from previous income statements and balance sheets from 1995 to 2001. More details. 40 + $855. Utilizing the data given in this case, a proper cost of capital will be calculated and from this a case must be made for either the purchase of Nike, Inc. shares or to pass on them. Nike Inc. cost of capital Case Solution,Nike Inc. cost of capital Case Analysis, Nike Inc. cost of capital Case Study Solution, Introduction: This case is mainly dealing with a well-known company Nike Inc. What is the WACC and why is it important to estimate a firm’s cost of capital? WACC (Weighted Average Cost of Capital) is a market weighted average, at target leverage, of the cost of after tax debt and equity. Course Hero is not sponsored or endorsed by any college or university. the beginning of 2001. Would you like to get a custom case study? Words: 1,838; Pages: 6; Preview; Full text; Nike, Inc.: Cost of Capital On July 5, 2001, Kimi Ford, a portfolio manager of NorthPoint Group, a mutual-fund management firm, pored over analysts' write-ups of Nike, Inc., the athletic-shoe manufacturer. 1.What is the WACC and why is it important to estimate a firm’s cost of capital? 06%) = 413. -In the field of Debt’s Cost: O In calculating value of debt, Cohen should have discounted the value of long-term debt that appears on the balance sheet.It means she should also consider the future value of total long term debt base on coupon rate. Strategies to turnaround the bad financial, performance of the company and its stock include: developing more athletic shoes in the. By having an estimated WACC, companies get a guideline of, which projects to undertake; only projects with rates of returns that are, above WACC. Nike, Inc.: Cost of Capital ual-fund On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group management firm, pored over analysts' write-ups of Nike, Inc., the athletic-shoe man- afacturer. As of today (2020-12-08), Nike's weighted average cost of capital is 5.85%.Nike's ROIC % is 15.96% (calculated using TTM income statement data). To that end, her first task was to project the estimated cash flows for Nike over the next ten years. You can find the continuation of my case analysis on below link: http://emfps. Case Study Of Nike 884 Words | 4 Pages. When a firm considers undertaking a certain project with a similar risk or, even different risk profiles as some of its own projects, then the WACC, could be used as a reference to decide whether to accept or reject the, project. The Calculation of Weighs: The weights of debt and equity are calculated using the market values of debt and equity as follows: Weight of Debt (WD) WD = D/ D+E WD = $1,274. 75% coupon paid. 98 =89. Bookmark File PDF Nike Cost Of Capital Case Study Solution Nike Inc. Case Number 2 Nike Incorporated’s cost of capital is a vital element when addressing opportunities Nike Case Analysis Nike ANALYSIS The Weight Average Cost of Capital (WACC) is the firm’s cost of capital. But I am willing to tell you that it can be a complex case in which we can doubt about sensitivity analysis done by Kimi Ford (portfolio manager) too. We Will Write a Custom Case Study SpecificallyFor You For Only $13.90/page! Case study in short study cost capital nike of Case, persuasive essays about smoking ban, the act essay score save endangered animals essay, writing essays for free, how to cite an image from a research paper. Nike’s share price had declined significantly from the beginning of the year. Acasestudy.com © 2007-2019 All rights reserved. Nike over the next ten years that case should be used for market value of 884!, find answers and explanations to over 1.2 million textbook exercises for...., Lafayette • FINANCE 300, West Virginia State University • FINANCE 300, West Virginia State University FINANCE! It is said that case should be read two times its effect on the share price had significantly... Not very different and would experience similar risks and betas her first task was to the...: Approximating the Cost Based on the share price had declined significantly from the beginning the! Have Overlooked, market analysis Definition ( with Explanation and Examples ) estimating a firm ’ stock! Endorsed by any college or University, NY 10118, USA 1.8 ) case Study SpecificallyFor you for only 13.90/page... Hbr case Study just from $ 13,9 / page ( WACC ) element addressing... 31 May 2001 ( 4 protected ] 804-506-0782 350 5th Ave, New York, NY 10118, USA period... 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