Nike Essay

1195 WordsMar 24, 20155 Pages
Case Study: Nike Inc. Introduction and Background Engaged in the design, manufacturing, and worldwide marketing and selling of footwear, apparel, equipment, accessories, Nike Inc. is an American multinational corporation that is headquartered near Beaverton, Oregon in the Portland metropolitan area. Known as one of the world’s largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, Nike Inc. generated more than $24.1 billion in its fiscal year ending May 2012. The company was founded on January 25, 1964 as Blue Ribbon Sport and adopted its current name officially on May 30, 1971. It employed 44,000 people worldwide as of 2012. Relevant Facts: In 2001, Kimi Ford, a portfolio manager of a big mutual fund management firm, was looking into the viability of investing in the stocks of Nike for the fund that she managed. Nike disclosed its results for the same fiscal year on June 28, and also communicated its plans to improve and perform better. Ford should base her decision on data available on the company, and she also should take into account opinions given by a third party on whether the stock was a sound investment. In order to make any financial decisions, management always takes notice of the cost of capital. In this case, Joanna Cohen, the new assistant of Kimi, calculated the Weighted Average Cost of Capital (WACC) to estimate Nike’s cost of capital. The WACC is “is the rate (express as a percentage, like interest) that a company is expected to pay to debt holders (cost of debt) or shareholders (cost of equity) to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital.” It is calculated as follow: WACC= (W debt(1-t)K debt) + (W preferredK preferred) + (W equity K equity) Where: K= Component cost of capital W=

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