Nike Essay

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MBA FM Module Assignment 4: Nike, Inc. Cost of capital Why is it so important to estimate a firms cost of capital ? What does it represent? Gaytree What is your estimate of WACC for Nike and what mistakes did Joanna make in her analysis? Which method is best for calculating the cost of equity? What should Kimi Ford recommend regarding an investment in Nike? Discuss the cash flow presentated and highlight other areas of sensitivity. Problem Identification Discussion of Joanna’s WACC WACC Calculation Recommendation and its support by discussion and analysis. INTRODUCTION Kimi Ford, the portfolio manager of NorthPoint Group, mutual-fund management firm, was considering buying some shares from Nike, Inc. in 2001. After going through the analysts’ reports for Nike’s Inc. fiscal – year 2001 results, she was still unable to take a clear cut decision on whether to buy the shares or not. She therefore, herself started working on the forecast using discount rate and quick sensitivity analysis. However, due to her busy schedule she was unable to complete the analysis and hence appointed her new assistant, Joanna Cohen to estimate Nike’s Inc Cost of Capital. The report below will analyse and evaluate the findings submitted by Joanna Cohen to decide whether NorthPoint Group can buy shares in Nike Inc. or not. Company Profile: NorthPoint Group, mutual-fund management firm A dynamic mutual fund management firm which used to invest mostly in Fortune 500 large caps companies, including ExxonMobil, General Motors among others. Being a value investor, Kimi Ford is investigating whether the current market share price of Nike Inc is undervalued so as to make a buy decision in anticipation of future capital gains Company Profile: Nike, Inc. In 1997, the company had its revenues stagnated due to problems with the supply chain and adverse effect of

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