Using market value, we came up with a cost of capital of 9. Nike, inc cost of capital by jessica chan, robert f. This is an approximation for the true cost of the debt, but is too inaccurate. Introduction kimi ford a portfolio manager at northpoint group which is a mutualfund management firm, is considering to buy some shares from nike, inc even if its share price had declined from the beginning of the year, for the northpoint largecap. Cost of capital case study analysis, subjects covered finance by kenneth eades, david thornhill source. Nike, was founded in the year 1957 by knight and the company since the very beginning manufacturing higher quality sports shoes for several sports inclusive of athletics, football, volleyball etc. 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. Social media and advertising cookies of third parties are used to offer you social media functionalities and personalized ads. Nikes share price had declined significantly from the beginning of the year. Cost of capital on july 5, 2001, kimi ford, a portfolio manager of northpoint group, a mutualfund management firm, pored over analysts writeups of nike, inc. On july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management firm, pored over analyst writeups of nike, inc. 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. Total capital, fair value 0 current fair value of nike inc.
Cost of equity capm model capital asset pricing model 9. Nike inc cost of capital hult international business school march 2, 2014 1. Case number 2 nike incorporateds cost of capital is a vital element when addressing opportunities regarding topline growth and operating performance. Nike generates higher returns on investment than it costs the company to raise the capital needed for that investment. Nike became a publicly traded company since december 2, 1980, the share price has changed significantly during 20years time. Northpoint large cap fund weighing whether or not to buy nikes stock. Thus, their task is to identify and explain the mistakes in the analysis, which.
Must respond to shifts in consumer preferences by adjusting existing product offerings, styles and categories. Nikes share price had declined significantly from the beginning of. To get more information or amend your preferences, press the more information button or visit cookie settings at the bottom. Cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund management firm, pored over analysts writeups of nike, inc. As of today 20200505, nikes weighted average cost of capital is 5. It was found by bill bowerman and phil knight in the year 1964. Introduction kimi ford a portfolio manager at northpoint group which is a mutualfund management firm, is considering to buy some shares from nike, inc even if its share price had declined from the beginning of the year, for the northpoint largecap fund she managed which. The environmental disaster was hurricane katrina which was caused the huge destruction across the southeastern united states. Nike over view nike is the ancient greek goddess of victory it is one of the most recognized symbols in the world. Cost of capital case 15 financial administration finc 57180 team 1 fall 20.
November23,2016 nike, inc cost of capital prepared by justin nychuk bus 495. Nike inc cost of capital case solution, nike inc cost of capital case analysis, nike inc cost of capital case study solution, nike inc cost of capital case solution, a4. Provides a wacc calculation, although it has been intentionally designed to mislead students. Nike inc cost of capital case solution term paper warehouse. Case analysis of nike, inc cost of capital find mba. Each report should have a cover page that contains the following the names of. Nike case study analysis by ahmed samir haitham salah magdy essmat magdy mohamed sherif 2. 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. Nikes primary goal is to supply athletes with exceptional products. Introduction miss ford is a portfolio manager for northpoint group, a mutualfund management firm. On july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund management firm, pored over analysts writeups of nike, inc.
Essay on nike cost of capital case 1615 words bartleby. 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 share price had declined significantly from the start of the year. The capital structure of the company shows that it is focusing more onequity financing as compared to debt financing. Cost of capital excel file, subjects covered finance by kenneth eades, david thornhill source.
Nike, inc cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutualfund management. 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. Cost of capital case summary in this case, kimi ford, a portfolio manager at northpoint group, a mutual fund company, manages the northpoint largecap fund. Nike case analysis wacc nike inc case study please enjoy. The cost of equity can be determined using the capital asset pricing model capm.
Ford was considering buying some shares for the fund she managed, the northpoint largecap. Nike, inc cost of capital case study free download as powerpoint presentation. Failure to respond timely could have adverse effects on sales and productivity just do it. Cost of capital on july 5, 2001, kimi ford, a portfolio manager at northpoint group, a mutual fund. Northpoint large cap fund weighing whether to buy nikes stock. Nikes share price had declined significantly from the. Nike inc cost of capital case study essay 917 words. Our analysis will include how wacc is calculated using the capital asset pricing model capm to. To calculate the cost of debt, cohen simply divides the interest expense by the average balance of the interestbearing debt.
Project evaluation solved by using beta regressions and weighted average cost of capital wacc comparisons. Decline in sales, growth, and market share plans to increase exposure in midprice footwear and apparel lines and commits to cut down expenses. Conclusion after discounting cash flows provided in exhibit 2 with the calculated wacc of 9. The concept of cost of capital is also important in many others areas of decision making, such as dividend decisions, working capital policy etc. Acceptance or rejection of an investment project depends on the cost that the company has to pay for financing it. Nike s share price had declined significantly from the start of the year. Case study nike, inc cost of capital essay 718 words. This new dimensions in hrd pdf case is a group project that is due on march 28 just before class begins at 10. Nike swot 2020 swot analysis of nike business strategy hub. Cohen calculated a weighted average cost of capital wacc of 8.
As used in this report, the terms we, us, nike and the company refer to nike, inc. This case is about the impact of an environmental factor external issue on dividend policy of the firm internal issue. This fund invests mostly in fortune 500 companies with an emphasis on value investing. Nike inc cost of capital case solution and analysis, hbr. Financial analysis and decisions darryl yasinowski university of regina due november 23rd 2016 2.
Nike over view nike is the ancient greek goddess of victory it is one of the most recognized symbols in the world the swoosh. In nikes case, when joanna cohen calculated the wacc of nike, she made several mistakes and led to a wrong estimate of the cost of capital. Nike, inc cost of capital case study cost of capital beta. As such, the cost of capital is a critical factor in decisionmaking and in estimating the weighted average cost of capital wacc. The market responded mixed signals to nikes changes. Nike this case is a group project that is due on march 28 just before class begins at 10. Pdf cost of capital at ameritrade marco fazio academia. Additionally, the company also has been involved in manufacturing equipments for fitness and related sports apparels such as caps amoakogympah 2010. Nike cost of capital case study 1193 words 5 pages. Nike is a public company, and its market capitalization is a more relevant metric for equity than the book value of equity. Case the weighted average cost of capital wacc free essay and over 89,000 other research documents. Nike inc cost of capital case study essay graduateway. Nike inc cost of capital nike struggles with demand of changing design trends. What is the wacc and why is it important to estimate a firms cost of capital.
The american manufacturer, through its marketing strategy which rests on a favorable brand image, has evolved into a large. A firms weighted average cost of capital wacc represents its blended cost of capital across all sources, including common shares, preferred shares, and debt. The company specializes in athletic wear, providing footwear, apparel, athletic equipment, and accessories. Cost of capital on july 5, 2001, kimi ford, a portfolio manager of. As of today 20200504, nike s weighted average cost of capital is 5. Ford was considering buying some shares for the fund. Introduction kimi ford a portfolio manager at northpoint group which is a mutualfund management firm, is considering to buy some shares from nike, inc even if its share price had declined from the beginning of the year, for the northpoint largecap fund she. Nike asks you to accept cookies for performance, social media and advertising purposes. Using this computed wacc and a growth rate of 3%, an equity value. Introduces the weighted average cost of capital wacc. Nike has reveal that it would increase exposure in midprice footwear and apparel lines.
If you do not agree with cohens analysis, calculate your own wacc for nike and be prepared to justify your assumptions. Nike s share price had declined significantly from the beginning of the year. Nike, inc cost of capital case analysis importance of cost of capital the concept of cost of capital is used in finance decisions. Nike, inc cost of capital case study cost of capital. I case background kimi ford the manager of the northpoint largecap fund, which invested mostly in fortune 500 companies, weighing whether to buy nikes stock. The capital asset pricing model capm approach for calculating the cost of equity in the case of nike inc uses a beta of 0.
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