Essay on NIke solutions - 1702 Words

Appendix I C1: Equity = Stock Price x Number of Shares Outstanding = $42.09 X 271.5 = $11,427.435 million C2: Using Adjusted Beta formula: Adjusted Beta = 0.67* historical Beta + 0.33 = 0.67* 0.69 +0.33=0.79 C3: Using CAPM formula: KE = Krf + ß (Km-Krf) = 3.59%+0.79*6.7%=8.89% C4: Using rearranged DGM formula: KE =D1/P0 +g= 0.48(1+5.5%)/42.09 +5.5%=6.7% C5: Using redeemable bond formula: KD: 95.6= 100/ (1+KD/2)40 + 3.375(1-0.38)/(1+KD/2)n KD=4.52% C6: Using WACC formula: Rwacc =4.52*10.19% + 8.89*89.81% = 8.44% C7: average dividend growth rate: g = [0+12.5++ 20+12+8]/4 %=8% (Assumption: In this calculation, the growth rates significantly higher than 20% and negative figure have been ignored.) C8: Using CAPM:†¦show more content†¦* Using CAPM (popular) for calculate Ke KE = KRF + (KM – KRF) x Beta ï‚ · Beta: is seen as an ‘index of responsiveness’ of changes in a security’s returns relative to changes in returns on the market, in this case is sport utility industry) (In Exhibit 4 of Nike Inc., given from 1996 is Average beta = 0.80, beta in 2001 is 0.69) ï‚ · KRF: risk free rate ï‚ · (KM - KRF) : Risk market premium ï‚ · KM: Return on market. Using KRF = Profitability rate of Government bonds (U.S. Treasury), in Exhibit 4 we have U.S Treasury 20-year ïÆ' ¨ KRF= 5.74% According to Joana Cohen, she got risk premium = 5.90% (in Exhibit 4: geometric mean = 5.90%, arithmetic mean = 7.50%) Because of arithmetic mean is better for one-year period estimated expected returns, while geometric mean is better for long-term period valuation. So, for long life valuation, we can find stable valuation (Jacquier et al., 2003). That’s the answer for Joana Cohen choses geometric mean for her calculated. Joanna Cohen calculated: KE = 5.74% + 5.90% x 0.80 = 10.46% ( rounding 10.5%) Cohen uses average beta from 1996 to July 2001, 0.80 to be the measure of systematic risk, but we need to find out a beta that is most representative to future beta. As such, most recent beta is the best choice in this situation (Sharpe, 1995). So most recent beta estimate is recent beta at 06 June 2001 is 0.69. We have : KE = 5.74% +Show MoreRelatedNike Hrm Issues and Solutions5308 Words   |  22 PagesHBH225N Human Resource Management Semester 02/2012 Individual Assignment Nike – Human Resource Management Issues and Solutions Due Date: Friday, 30. November 2012 By Katharina Pilgrim, ID: 4310187 Executive Summary In 1964 a company known back then as Blue Ribbon Sports was founded by Bill Bowerman and Phil Knight. 14 years later the US American multinational corporation officially became Nike, Inc., which is up to today engaged in the development, design and international marketingRead MoreNike Case Solution Essay1264 Words   |  6 PagesTopic: Nike Inc.: Cost of Capital Course: International Finance Table of Contents 1 Background Information on the Case: 3 1.1 Nike’s Performance: 3 1.2 Nike Analysts Meeting June 28, 2001: 3 2 Kimi Ford’s Evaluation of Nike: 3 3 Joanna Cohen’s Calculation of Nike’s Cost of Capital: 3 3.1 Assumptions amp; Calculations: 3 4 Our Calculation: 4 4.1 Cost of common equity 4 4.2 Cost of debt 4 4.3 Weights of Debt and Equity 4 4.4 WACC 5 4.5 Equity Value of ShareRead MoreNike Business Case Study1380 Words   |  6 PagesEven though every company should act ethically correct, not everyone does and Nike is a great example of that. 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