Nike

Kyle Fortin 2/9/2011 Case 14: NIKE, INC.: COST OF expectant 1. What is the WACC and why is it important to estimate a business firms apostrophize of capital? Do you agree with Joanna Cohens WACC calculation? wherefore or why not? The Weighted amount comprise of Capital is the average of the monetary mensu enjoins of a golf-clubs sources of financing-debt and integrity, each of which is weight down by its respective social occasion in the given situation. By taking a weighted average, it shows how frequently interest the gild has to accept for every marginal dollar sign 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 take away discount prise to use in stock valuation. No, I dont agree with Cohens WACC calculation. The cost of debt was unconquerable incorrectly. To determ ine the cost of debt I figure outd the yield to maturity based on the information available on the certain Yield from bring forbidden 4. Cost of debt is the interest site the firm must pay on new borrowing, which put up be seen in the monetary markets. Since Nike has bonds outstanding, then the YTM on those bonds (7.13%) is the market-required tell on the Nikes debt.

In order to solve for the congeries debt, I had to find out the market determine of the debt. In doing so I work out the book value by the percent of face value that the debt was currently merchandising for (.9560) or the present value of the debt. I was able to use my calculation fro! m the CAPM as my cost of equity (10.36%). In understand 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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