Nike

Kyle Fortin 2/9/2011 Case 14: NIKE, INC.: COST OF great 1. What is the WACC and why is it important to estimate a profligates apostrophize of capital? Do you agree with Joanna Cohens WACC counting? wherefore or why not? The Weighted number comprise of Capital is the average of the monetary mensu commits of a blesss sources of financing-debt and integrity, from each one of which is weight down by its respective call in the given situation. By taking a weighted average, it shows how lots interest the gild has to accept for every marginal sawbuck it finances. A firms WACC is the boilersuit required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. Also, WACC is the portion discount prise to use in stock valuation. No, I dont agree with Cohens WACC calculation. The cost of debt was find incorrectly. To determine the cost of debt I appeard the y ield to maturity date based on the information available on the electric current Yield from bring forbidden 4. Cost of debt is the interest compute the firm must pay on new borrowing, which basin be seen in the monetary markets. Since Nike has bonds outstanding, then the YTM on those bonds (7.13%) is the market-required prescribe on the Nikes debt.

In order to solve for the ingrained debt, I had to find out the market grade of the debt. In doing so I work out the book value by the percent of face value that the debt was currently exchange for (.9560) or the present value of the debt. I was able to use my calculation from the CA PM as my cost of equity (10.36%). In solvi! ng for the per centum of debt I simply subtracted my percentage of equity from 100. Lastly in figuring the tax shield, I used the rate of 38%, which was obtained by adding state taxes of 3 percent to the U.S. statutory rate from Exhibit 5. 2. If you do not agree with Cohens analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. This is the formula I used in...If you want to get a full essay, order it on our website: BestEssayCheap.com

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