Nike Inc
Nike Inc
Case Analysis: Nike, Inc.: Cost of Capital
Monica Mojica
FIU
Finance 6800
Professor Smith
Fall 2011
Table of Contents
Problem Statement…………………………………………………………………………… 3
Situation Analysis……………………………………………………………………………... 3
Major Strategic Alternatives…………………………………………………………………...3
Decision Criteria……………………………………………………………………………….. 4
Analysis of Alternatives ………………………………………………………………………. 4
Recommended Solution………………………………………………………………………. 6
Problem
The basic problem for the Nike, Inc.: Cost of Capital case lies on whether or not Nike is a good match for the NorthPoint Large-Cap Fund. Kimi Ford, the portfolio manager, has to decide if Nike is a value-investing company that will contribute to the outstanding performance of the fund. In order to evaluate Nike as a viable choice, Kim has to calculate the cost of capital for the company and make sure assumptions are a direct function from the estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However, the assumptions made to calculate WACC, in this case, are the underlying problem because some of the assumptions made are incorrect.
Analysis
Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the meeting, management discussed their strategy to improve revenues and net income by developing more athletic shoe products in the mispriced segment of selling shoes at $70-$90 a pair. The company also planned to increase sales for its apparel line, which it had performed really well lately. Management was also concern in the drop of market share from 48%, in 1997, to 42% in 2000. Nike was also committed to make an effort in controlling company expenses more diligently.
Yet, Nike’s
Case Analysis: Nike, Inc.: Cost of Capital
Monica Mojica
FIU
Finance 6800
Professor Smith
Fall 2011
Table of Contents
Problem Statement…………………………………………………………………………… 3
Situation Analysis……………………………………………………………………………... 3
Major Strategic Alternatives…………………………………………………………………...3
Decision Criteria……………………………………………………………………………….. 4
Analysis of Alternatives ………………………………………………………………………. 4
Recommended Solution………………………………………………………………………. 6
Problem
The basic problem for the Nike, Inc.: Cost of Capital case lies on whether or not Nike is a good match for the NorthPoint Large-Cap Fund. Kimi Ford, the portfolio manager, has to decide if Nike is a value-investing company that will contribute to the outstanding performance of the fund. In order to evaluate Nike as a viable choice, Kim has to calculate the cost of capital for the company and make sure assumptions are a direct function from the estimates. The cost of capital calculation or WACC helps to see if an investment is worthwhile to undertake. However, the assumptions made to calculate WACC, in this case, are the underlying problem because some of the assumptions made are incorrect.
Analysis
Nike held a meeting to discuss company performance at 2011 end of fiscal year. In the meeting, management discussed their strategy to improve revenues and net income by developing more athletic shoe products in the mispriced segment of selling shoes at $70-$90 a pair. The company also planned to increase sales for its apparel line, which it had performed really well lately. Management was also concern in the drop of market share from 48%, in 1997, to 42% in 2000. Nike was also committed to make an effort in controlling company expenses more diligently.
Yet, Nike’s