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1. What is WACC and why it is important to estimate firm’s cost of capital?
Wacc: weighted average cost of capital a calculation of a firm's cost of capital that weights each category of capital proportionately. It calculates the cost of debt”Kdt” cost of preferred stocks”Kps” cost of earnings”Ks” cost of common stocks”Ke”
The cost of capital for any particular business or project is the rate of return required by the providers of capital (both debt and equity) having regard to the risk characteristics inherent in the project. Businesses or projects which are able to earn returns greater than the cost of capital add value for investors. Conversely, businesses or projects which, while they may still be profitable, produce returns less than the cost of capital "destroy" investor value.
2. Do u agree with Joanna analysis on wacc calculation why or why not?
No I don’t agree for many reasons:
• Total capital of equity in % is 73% instead of 72%
• The calculation of debt is wrong because she divided the total interest expense by the company average debt balance.
• The calculation of capm is wrong too because we should take the arithmetic risk premium rather than geometric risk.
3. If u don’t agree calculate your own WACC for Nike? And be ready to justify your assumptions?
Wacc=wkdt*Kdt+wkps*kps+ws*ks+we*ke
• Kdt=kd(1-t)
Kdt=6.86(1-0.38)
Tax rate=38%
Kdt=4.25
• Capm= krt+B(krm-krt)
Capm=7.5+0.80(10.5-7.5)
Capm=9.9%

Wacc = 4.25*27+9.9*73=
Wacc= 8.37%
The irr or the return on capital should be >than the wacc
10%>8.37%
4. Calculate the costs of equity using CAPM, Dividend discount model, and the earning capitalization model?
• Capm= krt+B(krm-krt)
Capm=7.5+0.80(10.5-7.5)
Capm=9.9%
• Ks=div1/p0+g
D1 = D0(1+g)
=...