Nike Cost of Captial - 777 Words

Nike Cost of Capital I. Single of Multiple Costs of Capital Since Nike has multiple business segments it is appropriate to question whether to use single or multiple costs of capital for the analysis. Kimi’s assistant Joanna went ahead and chose to use one cost of capital for Nike. We agree with her decision because Nike’s different segments are all generally sports related and are susceptible to the same market risks. For example, Nike’s footwear and apparel lines, which make up a combined 92% of their revenue, are segments that complement each other and are sold through the same marketing and distribution channels. Non-Nike products made up only 4.5% of Nike’s revenue including the Cole Haan brand, a company that sells casual dress and†¦show more content†¦Instead of deriving the amount of equity from book values, we calculated Nike’s current market capitalization by multiplying the stock price by the number of shares outstanding and arrived at $11,427,435,000. According to our new calculations, d ebt is now 10.1% and equity is now 89.9% of Nike’s total capital. III. Cost of Debt By using the yield to maturity approach, we were able to calculate the cost of debt of Nike. Examining the information provided through exhibit 4, a 20 year bond was issued with an interest payment of 6.75% semi-annually. With this semi-annual status, I=3.375% and N would be equal to 40. Lastly, the current price of the bond (P1) is $95.60 and the par value (P0) is $100. Taking in to consideration the corporate tax rate of 38% and using the redeemable bond formula, we found the cost of debt to be equal to 4.5%. IV. Cost of Equity We estimated the cost of equity using both the capital-asset-pricing model (CAPM) and the dividend growth model (DGM). Two separate WACCs were calculated on separate sheets simply for comparison reasons. We choose to take the WACC using the cost of equity derived from the CAPM method however, since it is known to be the superior method. Our estimate of Nike’s cost of equity using the DGM method is 6.64%. This was achieved by taking the .48 dividend payment, dividing it by the current share price of $42.09 and adding it to the dividend growth rate of 5.0%. Our estimate of Nike’sShow MoreRelatedNike vs. Under Armour Essay2943 Words   |  12 Pagesindustry are the companies in? Nike; one of the most well known companies across the globe today is most known for being the world’s #1 shoemaker. They design and sell shoes for a variety of sports including baseball, golf, tennis and football. Nike also sells dress and casual shoes as well as athletic apparel and equipment for almost every sport imaginable. In addition Nike also operates NIKETOWN shoe and sportswear stores, factory outlets along with Nike women shops. One of Nike’s biggest competitorsRead MoreContemporary Issues in Management Accounting211377 Words   |  846 Pagesanalysis, contingency frameworks, performance measurement systems, and strategic cost management, which are considered from the perspective of changing concerns facing modern organizations and present-day management thought as well as in the light of some of their historical dimensions. Other chapters deal with newly emerging concerns in management accounting, including network relations, digitization, integrated cost m anagement systems, knowledge management pursuits, and environmental managementRead MoreFundamentals of Hrm263904 Words   |  1056 Pages134 Factors That Affect Recruiting Efforts 134 DID YOU KNOW?: Something for Everyone 135 Constraints on Recruiting Efforts 135 Organizational Image 135 Job Attractiveness 136 Internal Organizational Policies 136 Government Influence 136 Recruiting Costs 136 Chapter 7 Foundations of Selection 154 Learning Outcomes 154 Introduction 156 The Selection Process 156 Initial Screening 156 Completing the Application Form 157 DIVERSITY ISSUES IN HRM: Interview Questions 158 Key Issues 159 Weighted Application