Nike

Kyle Fortin 2/9/2011 Case 14: NIKE, INC.: COST OF uppercase 1. What is the WACC and why is it important to estimate a cockeyeds apostrophize of capital? Do you agree with Joanna Cohens WACC counting? wherefore or why not? The Weighted middling comprise of Capital is the average of the monetary mensu marks of a regularises sources of financing-debt and integrity, all(prenominal) of which is weight down by its respective map in the given situation. By taking a weighted average, it shows how more than interest the gild has to accept for every marginal long horse 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 fascinate discount prise to use in stock valuation. No, I dont agree with Cohens WACC calculation. The cost of debt was unconquerable incorrectly. To determine the c ost of debt I count ond the yield to adulthood based on the information available on the electric current Yield from bring forbidden 4. Cost of debt is the interest come out the firm must pay on new borrowing, which buttocks be seen in the monetary markets. Since Nike has bonds outstanding, then the YTM on those bonds (7.13%) is the market-required estimate on the Nikes debt.

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