'Nike Cost of Capital Essay\r'

'Kimi Ford a portfolio manager at NorthPoint Group which is a mutual-fund perplexity firm, is considering to buy some parts from Nike, inc even if it’s share value had declined from the beginning of the year, for the Northpoint Large-cap fund she managed which invested mostly in Fortune 500 companies and it was doing well disdain the decline in the stock grocery store over the last 18 months. Kimi on that pointfore surveyed the proves of Nike’s fiscal-year 2001which had been revealed a week earlier.\r\nIssues that ca utilize a decline in market sales as revealed by the management of Nike 1. Revenues since 1997 had stop growing but remained around $9. 0 billion. 2. The clams income had fallen from $800m to $580m a decline of $220 million. 3. Nike’s market share in the U. S. athletic shoe manufacture had fallen from 48 percent in 1997 to 42 percent in 2000 (6% decline) 4. The issue of Supply-chain and strong dollar bill exchange pass judgment also aff ected the tax income negatively. Nike’s Strategic send off to address the above issues\r\n1. Increase revenues by developing more athletic-shoe products in the mid-priced range. 2. Push its apparel line which had performed tremendously well. 3. maintain more expense control on the live side. 4. Nike’s executives expressed their interest to continue with the long-run revenue growth target of 8 to 10 percent and earnings-growth targets of above 15 percent. Although the management presented its plan to improve on its performance, there were mixed reactions from the one-third party analysts.\r\nKimi Ford was also not snug with the Nike’s analysis therefore she decided that it was inevitable to develop her own discounted-cash-flow forecast. She found that Nike was overvalued at the discounted rate of 12% at its current share price of $42. 09. She also did a quick sensitivity analysis which revealed that Nike was undervalued at discounted rates below 11. 17% . In order for Kimi to make a proper enthronisation decision for her Fund, she asked Joanna Cohen to train the cost of capital. However there were some problems. Cohen’s calculation of cost of capital.\r\nShe utilise single cost of capital for the apparel and footwear lines assuming that they are sold through the equal marketing and distribution channels and are a good deal marketed in other collections of similar designs. WACC (Weighted Average damage of Capital) WACC is calculated using weighted averages of debt (Kd) and equity (We) Cohen used Capital Asset Pricing Model (CAPM) to calculate WACC 0f 8. 4 % however, she used the book values thus far weights should be based on the market value. Her result of $3,494. 5 for the Equity was wrong. The formula for calculating the mart value of equity is E = stock scathe x Number of shares outstanding .\r\n'