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 ………………………………………………………………………
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deferral period (PDP) is about 40 days. What is Stonys cash conversion cycle (CCC) 12)The main source of short-term operating capital is _________ 13)An investors risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true 14)An all-equity-financed firm would __________. 15)If a firm wants to lower its weighted average cost of capital (WACC)‚ one way to do so would be to 16)Boeing is a world leader in commercial aircraft. In the face of competition‚ Boeing
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hurdle rates were to be increased the companies growth will decrease. In vice versa if Marriott institutes lower hurdle rates the growth will increase. 2. Below is how we calculated the WACC for The Marriot. BL= 1.11 Cost of Debt (rD): 8.72 + 1.30= 10.02 CapM/Cost of Equity: rf + (mkt risk prem)BL .0872 + (.1201-.0458) 1.11 = .1697 or 16.97% WACC: (1-T) rD (D/V) + rE (E/V) (1-.44) .1002(.60/1) + .1697(.40/1) = .033667 + .067880 = .101547 or 10.15%
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estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? WACC is the weighted average cost of capital. It can be calculated as: WACC = (Weight of funding source 1) x (Cost of funding source 1) + … + (Weight of funding source n) x (Cost of funding source n) Usually this will be simply: WACC = (Percentage of debt) x (Cost of debt) + (Percentage of equity) x (Cost of equity) It is important to estimate a firm’s cost of capital for the appraisal
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1 The Value of Synergy Aswath Damodaran Stern School of Business October 2005 2 The Value of Synergy Many acquisitions and some large strategic investments are often justified with the argument that they will create synergy. In this paper‚ we consider the various sources of synergy and categorize them into operating and financial synergies. We then examine how best to value synergy in any investment and how sensitive this value is to different assumptions. We also look at how this synergy value
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Apple ’s financial performance continued to strengthen over the last several quarters. In the most recent earnings announcement‚ Apple reported significant growth in net revenues driven by the strong performance of its iPod product line. Net sales for the 2nd quarter grew to $4.36 billion‚ which is a 34% increase over 2nd quarter 2005 results. Net income increased by 41% to $410 million. (Apple Reports)The iPod product line continues to drive the financial performance of the company. In the 2nd quarter
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total cost of the operating capital. EVA is simply the after-tax operating profit minus the total annual cost of capital. Using EVA has advantages as well as disadvantages. Advantages · EVA sends the message than managers should invest only if the increase in earnings is enough to cover cost of capital · EVA allows a good way for companies to set a reward system that is not overly expensive to implement because is not too difficult for top management to monitor. · EVA makes the cost of capital
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forms of business organization. 4. Corporations have the ability to raise larger sums of capital than the other forms of business organization. Objective: Explain how financial markets work in the United States. 2. Which of the following is NOT an advantage of a private placement (as compared to a public offering)? 1. Greater financing flexibility 2. Lower flotation costs 3. Lower interest costs 4. Quicker availability of funds Objective: Assess the role of ethics and compliance
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Bank Case Study 2011 Question (1): Capital Structure and Financing in the Banking Industry Introduction Australian banks are an interesting case of capital structure and financing considerations as far as companies go‚ in that they are regulated in a number of ways by the Australian Prudential Regulatory Authority (APRA) and the Reserve Bank of Australia (RBA). Considerations of capital structure have the effect of reducing the cost of capital and so in turn increase the value of the
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profitable operations every year since 1932‚ and held approximately a 60-65% market share by 1984. Sales had been increasing annually at about a 7% compound rate‚ and the return on average invested capital was about 20%. The cost structure of the company was 100% equity‚ owned solely by Mr. Case. The capital budget was the leftover earnings generated from internal operations minus the amount Mr. Case wished to withdrawal as income (dividends) for the year. Also‚ the seasonal accumulation
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