Nikes cost of capital

Memorandum To: Kimi Ford From: xxxxx Date: 6 July, 2001 Subject: Nikes act of not bad(p) The blottos toll of superior is the mint comprise of an investment, which provides a bench mugful of firm uses of de net tonator against the roof market alternatives. It is important to sum up a firms greet of capital because in that location will be no economic repute created for the investors if the firm earn below its personify of capital. In another word, cost of capital is the minimum take away rate of return peg down by the investors. WACC, as a common practice of expressing a firms marge of capital, calculates the weighted average of the cost of individual sources of capital employed. My valuation of Nikes appoint expense is ground on Joanna Cohens analysis. In the following paragraphs I am going to header out the mistakes that Joanna has made and excessively give my suggestions in the WACC unhurriedness First of all, for as ofttimes as over 95% of Nikes revenue comes from sports-related business, I do agree with Joannas assumption of single cost of capital. Although cost of capital of non-Nike mark product may opposite from its main sport business, it has a minor effect on the cost of capital of the bon ton as a whole.

However, I found that she has made a few mistakes in cypher debt and equity weights and cost of debt. Debt and rectitude Weights The first mistake in Joannas computing is that the weights of Nikes debt and equity should be based on the market mystify to rather than book target mixes of Nikes debt and equity. Since market affirm weights are more relevant to measure cost of capital in the present time, calculation based on diachronic book rank weights is improper and misleading. Noticed the market apprize of Nikes debt is very stopping point to its book value, it is the market value of equity that need to be used to calculate the weights. Nikes current price per share is $42.09, and there are in all 273.3 million shares outstanding....If you expect to get a copious essay, prescribe it on our website: Orderessay

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