The american manufacturer, through its marketing strategy which rests on a favorable brand image, has evolved into a large. Social media and advertising cookies of third parties are used to offer you social media functionalities and personalized ads. Nike, inc cost of capital by jessica chan, robert f. The high cost of labor in the united states is the primary factor pushing manufacturing overseas, but as robotics technology improves, companies like nike have the opportunity to circumvent these untenable costs and reshore many of their manufacturing operations. Lets start with the calculation of weighted average cost of capital wacc see. Case study nike, inc cost of capital essay 718 words. To get more information or amend your preferences, press the more information button or visit cookie settings at the bottom.
Provides a wacc calculation, although it has been intentionally designed to mislead students. Cost of capital nike inc was facing substantial financial slumps in the us market during the yester years. Our efforts, such actions, if implemented, could result in increases in the cost of our. The cost of capital is determined by computing the costs of various. On july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management firm, pored over analysts write ups.
In a study conducted for a danish epa report on the environmental. Nike, inc cost of capital group, a mutua fund 5, ford, a portfolio manager at the athletic man management firm, pored over analysts of inc. A comparative analysis of strategies and business models of nike, inc. Nike case study cost of capital equity finance scribd. It is important to calculate a firms cost of capital in order to determine the feasibility of a particular investment for a firm. Five are located in memphis, tennessee, two of which are owned and three of which are leased. What is the wacc and why is it important to estimate a firms cost of capital.
Nike this case is a group project that is due on march 28 just before class begins at 10. We calculated nikes weighted average cost of capital of 6. To put it simply, nike is treading all over its competition. It is used to evaluate and decide new projects, as well as the minimum return investors expect from the invested capital. Case number 2 nike incorporateds cost of capital is a vital element when addressing opportunities regarding topline growth and operating performance. The fact that nike inc had been valued for over 25 years shows that cohens use of the 20 year treasury yield was appropriate. As of today 202005, nike s weighted average cost of capital is 5. Each report should have a cover page that contains the following the names of. The cost of equity is usually calculated using the capital asset pricing model capm, which defines the cost of equity as follows. Essay on nike cost of capital case 1615 words bartleby. Nike brand inline stores including employeeonly stores 31 converse stores including factory stores 112 hurley stores including factory and employee stores 29 total 392 in the united states, nike has seven significant distribution centers.
Ezra solomon defines cost of capital is the minimum required rate of earnings or cutoff rate of capital expenditure according to mittal and agarwal the cost of capital is the minimum rate of return which a company is expected to earn from a proposed project so as to make no reduction in the earning per share to equity shareholders and its market price. Download ebook nike cost of capital case solution to. A comparative analysis of strategies and business models. In depth view into nke capital expenditure explanation, calculation, historical data and more. Nike, share price had declined from the emphasis ford was considering buying some shares for the fund with an largecap fund, which invested mostly in fortune 500 companies. On july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management firm, pored over analysts writeups.
Northpoint large cap fund weighing whether to buy nikes stock. Thus, their task is to identify and explain the mistakes in the analysis, which are intended to highlight conceptual issues regarding wacc and its components. The weighted average cost of capital wacc is the overall required rate of return on a firm as a whole. Nike, inc cost of capital consolidated balance sheets as of 2000 2001 in millions assets current assets. Cost of capital 1 discussion questions what is the. Project evaluation solved by using beta regressions and weighted average cost of capital wacc comparisons. Nike inc cost of capital by maria canchola on prezi. The swiss army knife of finance aswath damodaran april 2016 abstract there is no number in finance that is used in more places or in more contexts than the cost of capital. Thus, their task is to identify and explain the mistakes in the analysis, which are intended to highlight conceptual issues regarding wacc and its. Calculate cost of equity using capm and dividend d.
Nikes share price had declined significantly from the beginning of the year. Uv0010 nike, inc cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management firm, pored over analysts writeups of nike, inc. You know, this book is always making the fans to be dizzy if not to find. The cost of equity can be determined using the capital asset pricing model capm. The market responded mixed signals to nikes changes. 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. Nikes lean manufacturing model has kept its production costs low, but disruptive technology may soon force the company to reconsider its strategy.
Total capital, fair value 0 current fair value of nike inc. Feb 26, 2020 nike is a sound stock based on its steady stock performance and growth in earnings per share, revenue and net income, strong balance sheet, and management approach. Aswath damodaran april 2016 abstract new york university. Acceptance or rejection of an investment project depends on the cost that the company has to pay for financing it. Making business decisions given the added complexity, cost and time. On july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund management firm, pored over analysts writeups of nike, inc. Nike inc cost of capital case study essay example graduateway.
Pdf cost of capital at ameritrade marco fazio academia. Nike outperformed earnings in q12020 and is continuously growing. Download ebook nike cost of capital case solution nike cost of capital case solution nike case study weighted average cost of capital wacc a firms weighted average cost of. As of today 202005, nikes weighted average cost of capital is 5. Pdf on july 5 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management firm, pored over analyst writeups of. Longterm debt deferred income taxes and other liabilities redeemable preferred stock 2,140. Introduces the weighted average cost of capital wacc. November23,2016 nike, inc cost of capital prepared by justin nychuk bus 495. Financial analysis and decisions darryl yasinowski. Assumes that students have been exposed to the wacc, capm, the dividend discount model, and the earnings capitalization model. Each group will turn in one report sounds obvious, but might as well make it explicit. Nike generates higher returns on investment than it costs the company to raise the capital needed for that investment. This pdf contains attached files, including the nike msi dynamic. Nike, inc cost of capital case study cost of capital.
Nike case analysis cost of capital beta finance free 30day. The cost of capital is the cost of a firms debt and equity funds, or the required rate of return on a portfolio of the companys existing securities. There were matters of significant concern on the stagnating revenues of the company that for a long time since 1997 had remained at nine billion us dollars. Conclusion after discounting cash flows provided in exhibit 2 with the calculated wacc of 9. Nikes share price had declined significantly from the start of the year. Value 1 weight required rate of return 2 calculation. A correct calculation of weighted cost of capital is arrived at by using appropriate figures of the cost of equity and cost of debt. Nike asks you to accept cookies for performance, social media and advertising purposes. The companys portfolio brands include the nike brand, jordan.
Nike, inc cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund management firm, pored over analyst writeups of nike, inc. In corporate finance, it is the hurdle rate on investments, an optimizing. As such, the cost of capital is a critical factor in decisionmaking and in estimating the weighted average cost of capital wacc. Cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund. Nike has experienced sales growth decline, declines in profits and market share. Nike, inc cost of capital case analysis importance of cost of capital the concept of cost of capital is used in finance decisions. Because she was about to go into a meeting, she asked her new assistant. Case analysis of nike, inc cost of capital apparently, the issue of nikes case is to control and check the calculation cost of capital done by joanna cohen who is the assistant of a portfolio manager at northpoint group.
Capital market and financial information on or around july 52001 current vields klabat university economics 238 spring 2017. Cost of equity capm model capital asset pricing model 9. Nike, inc cost of capital case study cost of capital beta. Nikes share price had declined significantly from the beginning of. How to value a company using discounted cash flow dcf moneyweek investment tutorials every investor should have a basic grasp of the discounted cash flow dcf technique. Nike, inc cost of capital case study free download as powerpoint presentation. In corporate finance, it is the hurdle rate on investments, an optimizing tool for capital structure and a divining rod for dividends. Financial analysis and decisions darryl yasinowski university of regina due november 23rd 2016 2. The wacc is essentially a blend of the cost of equity and the aftertax cost of debt. Nike is a sound stock based on its steady stock performance and growth in earnings per share, revenue and net income, strong balance sheet, and management approach.
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