Nike Case: an Investment Paper
Nike Case: An Investment Paper
Time Context Nike generated $ 2.45 billion in operating income on revenues of $ 19 billion in the fiscal year ended in May 2009. However, its stock price has stagnated or became inactive for the last two years and its future sales and earnings are likely to be adversely affected by increased competition from both established firms (like Reebok and Adidas) and upstarts (such as Underarmour). This business problem made Nike to consider an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults.
Viewpoint The business problem involves financial matter. The investment to fashion apparel business is considered a financial problem. This must be handled by a financial executive. Thus, the viewpoint used in this study will be of that a financial executive.
Central Problem Nike is considering an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults. The central problem is whether to accept or to reject this project. The acceptance or rejection of this project might somewhat affects Nike’s inactive stock price and its future sales and earnings.
Statement of Objectives
Must Objectives ❖ To estimate the operating income from the proposed apparel division investment to Nike over the next 12 years; ❖ To estimate the after-tax return on capital for the operating portion of the period – from Years 3 – 12; ❖ To estimate the after-tax incremental cash flows from the proposed apparel investment to Nike over the next 12 years; ❖ To estimate the net present value of the expansion project to Nike if the project is terminated at the end of the 12th year, and both working capital and investment in other assets can be sold for book value at the end of that year; ❖ To estimate the net present value of the expansion project, making reasonable assumptions about investments and cash flows after year 12
Time Context Nike generated $ 2.45 billion in operating income on revenues of $ 19 billion in the fiscal year ended in May 2009. However, its stock price has stagnated or became inactive for the last two years and its future sales and earnings are likely to be adversely affected by increased competition from both established firms (like Reebok and Adidas) and upstarts (such as Underarmour). This business problem made Nike to consider an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults.
Viewpoint The business problem involves financial matter. The investment to fashion apparel business is considered a financial problem. This must be handled by a financial executive. Thus, the viewpoint used in this study will be of that a financial executive.
Central Problem Nike is considering an expansion into the fashion apparel business, producing high-priced casual clothing for teenagers and young adults. The central problem is whether to accept or to reject this project. The acceptance or rejection of this project might somewhat affects Nike’s inactive stock price and its future sales and earnings.
Statement of Objectives
Must Objectives ❖ To estimate the operating income from the proposed apparel division investment to Nike over the next 12 years; ❖ To estimate the after-tax return on capital for the operating portion of the period – from Years 3 – 12; ❖ To estimate the after-tax incremental cash flows from the proposed apparel investment to Nike over the next 12 years; ❖ To estimate the net present value of the expansion project to Nike if the project is terminated at the end of the 12th year, and both working capital and investment in other assets can be sold for book value at the end of that year; ❖ To estimate the net present value of the expansion project, making reasonable assumptions about investments and cash flows after year 12