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. 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. This translates to be the minimum overall required rate of return that the firm will keep. We disagree with Johanna Cohen’s assessment of Nike due to two
Premium
CASE STUDIES IN FINACE CASE STUDY 3: ESTIMATING THE COST OF CAPITAL QUESTION 1: a)b)c) The Capital Assets Price Model (CAPM) is used to describe the relationship between risk and expected return and is often used to estimate a cost of equity (Investopedia‚ 2009). The cost of equity(COE) of the discount rate is: R = Rf + β*(E - Rf) (1) Rf = Risk free rate of return‚ usually U.S. treasury bonds β = Beta for a company E = Expected return of the market
Premium Weighted average cost of capital Boeing Commercial Airplanes Rate of return
1. Bob’s Warehouse has a pre-tax cost of debt of 8.4 percent and an unlevered cost of capital of 14.6 percent. The firm’s tax rate is 37 percent and the cost of equity is 18 percent. What is the firm’s debt-equity ratio? | 0.76 | | 0.82 | | 0.79 | | 0.87 | | 0.72 | 2. Johnson Tire Distributors has an unlevered cost of capital of 11 percent‚ a tax rate of 34 percent‚ and expected earnings before interest and taxes of $1‚400. The company has $2‚700 in bonds
Premium Investment Generally Accepted Accounting Principles Economics
Nike Inc. – Cost of Capital & Stock Valuation Steven Seagal George Clooney Brad Pitt Background Nike Inc’s share price has declined considerably over the past few years and Kimi Ford‚ fund manager of NorthPoint Lager-Cap Fund‚ was considering investing in the stock. Nike was looking to revitalize itself by addressing both top-line growth and operating performance. The goal was to improve revenues that had plateaued‚ and increase profits that had decreased over the years. One
Premium Stock Discounted cash flow Weighted average cost of capital
Research on: effects of capital structure and cost of capital in China’s multinational business management General Outline 1.The goals of the multinational enterprises’ capital structure 2. The affect on cost of equity capital in the multinational business management. (CAPM MODEL‚ BETA ([pic]). 3. The affect on cost of debt capital in the multinational business management. (It differ from cost of equity capital‚ cost of debt capital will be impacted by the pros and cons of multinational
Premium Interest Rate of return Economics
T-4 Failure to identify and document cost estimating standards and provide written policies and procedures to persons responsible for preparing‚ supporting and reviewing cost estimates. T-10 Excessive reliance on individual personal judgement where historical experience or cost estimating standards are available. THREATS NEIGHBORHOOD SERVICES DEPARTMENT: T-6 Inadequate staff training in the preparation‚ review and approval of cost estimates. T-5 Inadequate staff training in the preparation
Premium Project management Costs Cost
NPV = $1‚228‚485 Discount rate = cost of equity (from CAPM) = 15.8% (see model for projected free cash flows) 2. Value the project using the Adjusted Present Value (APV) approach assuming the firm raises $750 thousand of debt to fund the project and keeps the level of debt constant in perpetuity. NPV of Levered Firm = $1‚528‚485 3. Value the project using the Weighted Average Cost of Capital (WACC) approach assuming the firm maintains a constant
Premium Weighted average cost of capital Finance Net present value
Overview This case study focuses on where financial theory ends and practical application of the weighted average cost of capital (WACC) begins. It presents evidence on how some of the most financially complex companies and financial advisors estimated capital costs and focuses on the gaps found between theory and application. The approach taken in the paper differed from their predecessors in several various respects. Prior published information was solely based on written‚ closed-end surveys sent
Premium Investment
ESE 540 Case Study 1: Midland Energy Resources‚ Inc.: Cost of Capital Team S As a profitable company that has been incorporated more than 120 years and with more than 80‚000 employees‚ Midland Energy Resources provides a wide range of operation and services‚ which can be concluded with three
Premium Weighted average cost of capital
Estimating the Cost of Capital: Survey and Synthesis Case 13 Teaching Notes Introduction “Each year in the US‚ corporations undertake more than $500 billion in capital spending” (Bruner 184). This case presents a reasonably analyzed set of teaching notes describing how these financially sophisticated corporations estimate their capital costs. Understanding the estimation of capital costs helps identify the uncertainty of the cost-of-capital theory‚ sets a benchmark for cost-of-capital‚ helps
Premium Investment Net present value Rate of return