Nike Wacc Case Study - 2281 Words

Financial Management Agenda 1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and justify your assumptions. 3. Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4. What should Kimi Ford recommend regarding an investment in Nike? 2 Case Overview Nike, Inc. NorthPoint Group Investment Decision ï‚ § Current share price of USD 42.09 ï‚ § Declining market share for the period 1997-2000 ï‚ § Strategy for revitalizing the company under consideration ï‚ § Plan†¦show more content†¦Ã¯â€š § Joanna is right to consider debt denominated in foreign currency, however her approach is flawed since she is once again looking at outstanding debt, which arrangements that occurred some time in the past might significantly differ from the current market reality. ï‚ § Since existing Nike bonds are trading at discount, we already know that the market yield exceeds the coupon rate. 5 * Strong arguments exist for using the geometric mean under certain circumstances. This point will be further elaborated Agenda 1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not? 2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and justify your assumptions. 3. Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method? 4. What should Kimi Ford recommend regarding an investment in Nike? 6 Calculating Cost of Equity ï‚ § Rf = 5.39% based on the current 10 year yield for the sake of consistency with the forecasted 10 year FCFF. ï‚ § Calculating risk premium based on arithmetic average vs geometric mean: ïÆ' ¼ Arithmetic average assumes no serial correlation and thus could be overstating the premium. ïÆ' ¼ Arithmetic average ignores estimation error and available data is limited. ïÆ' ¼ Arithmetic average works best forShow MoreRelatedCase Study –Nike, Inc.: Cost of Capital Essay718 Words   |  3 PagesCase Study –Nike, Inc.: Cost of Capital FIN202a-Spring 2011 1. Please define Weighted Average Cost of Capital (WACC). Write down the WACC formula, and discuss its components. WACC (Weighted Average Cost of Capital) is a market weighted average, at target leverage, of the cost of after tax debt and equity. It is a critical input for evaluating investment decision, and typically the discount rate for NPV calculation. And it serves as the benchmark for operating performance, relative toRead MoreCase Study on Nike1252 Words   |  6 PagesCase Study Nike Introduction Good morning ladies and gentlemen and thank for taking the time to meet with us. Nike was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and Philip Knight. The company officially became Nike, Inc. on May 30, 1978. Nike has various products which include footwear as well as other apparel that compliment the former. This accounts for 92 percent of the company’s revenue. The other 8 percent comes from equipment and non Nike brand products, such as ColeRead MoreEssay on NIke solutions1702 Words   |  7 Pages(1+KD/2)40  +  3.375(1-0.38)/(1+KD/2)n KD=4.52% C6: Using WACC formula: Rwacc  =4.52*10.19% + 8.89*89.81% = 8.44% C7: average dividend growth rate: g = [0+12.5++ 20+12+8]/4 %=8% (Assumption: In this calculation, the growth rates significantly higher than 20% and negative figure have been ignored.) C8: Using CAPM: KE’=3.2%+0.91*5.5%=8.21% C9:  Using DGM formula: P’=D1/ (KE’-g) =1.06*(1+8%)/(8.21%-8%)=$545 In Nike’s case, when Joanna Cohen calculated the WACC of Nike, she made several mistakes and led to a wrongRead MoreNike Cost of Capital Case2415 Words   |  10 Pagesmanagement firm. In July 2001, Ford considered buying shares of Nike, Inc., the well-known athletic shoe manufacturer. It would be prudent of Ford to base her assessment on Nike’s financial reports for 2001. Around the same time, Nike held an analysts’ meeting to disclose those financial results. They also addressed ways to revitalize the company, since share price was beginning to decline and revenues had plateaued at around $9 billion. Although Nike projected a rosy future, many analysts had mixed reactionsRead MoreCalculating Wacc2481 Words   |  10 Pagesweighted average cost of capital (WACC) to be 8.3%. I find error in this calculation as a result of the following points of disagreement: a) Weighting of Capital Structure: Use of book values of capital rather than the market values b) Cost of Debt Calculation: Incorrect method for calculating debt c) Tax Rate: Use of a tax rate derived from the summation of state and statutory taxes instead of the firms marginal tax rate 2. Revised Calculation of WACC: WACC reflects the weighted averageRead MoreNike Inc Cost of Capital2974 Words   |  12 PagesIntroduction Kimi Ford is a portfolio manager at NorthPoint Group, a mutual-fund management firm. She is evaluating Nike, Inc. (â€Å"Nike†) to potentially buy shares of their stock for the fund she manages, the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies, with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market. Ford has done a significant amount of research through analysts’ reportsRead MoreDeutsche2679 Words   |  11 Pages Phone: (403) 332-4582 e-mail: oz.palasvirta@uleth.ca Goal of Course Management 4430 is the capstone course in finance and will incorporate concepts you have learned in through your study of corporate, investments, and international. We will utilize the case methodology to focus our analysis. Cases describe a context in which a particular problem is found. Regardless of the particular characteristics of the problem, problem solving follows a general methodology: identification of theRead MoreFinancial Report Adidas5972 Words   |  24 PagesStudent number: 0880732 Term paper Handelshà ¸yskolen BI - Adidas AG - Exam code and name EXC 25093 Financial Statements and Valuation Hand-in date: 15.04.2011 Place of study: BI Oslo Program: Bachelor in Business and Administration Table of contents Summary ii Adidas 1 Sports Apparel Industry 1 Economic Situation 2 - Financial Statement Evaluation 2 - Profitability ratios 3 - Efficiency ratios 4 - Liquidity and cash flow ratiosRead MoreManagerial Economics Paper2648 Words   |  11 PagesSection A: Objective Type (30 marks) †¢ †¢ †¢ This section consists of multiple choices Short notes type questions. Answer all the questions. Part one carries 1 mark each Part two carries 5 marks each. MM.100 Part one: Multiple choices: 1. It is a study of economy as a whole a. Macroeconomics b. Microeconomics c. Recession d. Inflation 2. A comprehensive formulation which specifies the factors that influence the demand for the product a. Market demand b. Demand schedule c. Demand function d. IncomeRead MoreKraft Foods Analysis12781 Words   |  52 Pagesand immediately Kraft Foods’ results and market shares. MARKET POSITION COMPETITORS Krafts Foods is the second larger food company after Nestlà © in terms of volume of products sold and the first one in the United States. According to a recent study of Deloitte, in terms of turnover Kraft Foods is the fourth larger company in the world in the food beverages industry. The ranking is as follow: 1. NESTLE SA – Switzerland Chocolates, waters, dairy products, ice-creams, confectionery, frozen

A Summary of Chapters 1-5 in Death and Dying the...

A Summary of Chapters 1-5 in: The Psychosocial Aspects of Death and Dying By: Jennifer Lanier Jennifer D. Lanier September 21, 2008 Thanatology-Professor Wright This paper will summarize chapters 1-5 in the book The Psychosocial Aspects of Death and Dying. We will take a deeper look at each of these chapters and explain what they mean. The chapters we will be talking about will be the following: Death: Awareness and Anxiety, Cultural Attitudes Toward Death, Processing the Death Of A Loved One Through Life’s Transitions, The Psychology of Dying and last but not least Social Responses To Various Types of Death. By taking a deeper look at the above mentioned chapters we will obtain a better understanding about society’s and†¦show more content†¦In their mind grandma is just sleeping and will be back at some later date. As a child gets older they then begin to understand the permanency of death and that their loved one will not be coming back. This being said when a loved one dies one should not tell a young child that grandma is simply sleeping. This will give the child a false understa nding of death and could later in life cause issues. We in America tend to shy away from talking about death so much so that when we have to explain it to our younger counterparts we feel the need to protect them from this evil thing as if ignoring it and not talking about it will prevent it from happening. This is not true and certainly is not healthy. The best thing to do is face your own fears on death and not push them off onto a young and unsuspecting child. This chapter covers that and explains how people tend to view death over the years from childhood to adolescent to mid-life to old age. It talks about how frequently each age group tends to think about death and how it concerns them. Such as a child most likely would never think about death, a teenager may think because they are young they are invincible, a middle-aged person may think about the fact that death can come at any time and make a plan to protect their family just in case and an older person, around the ag e of 80 or older looks at death as something that is coming inevitably and tend to make what preparations they can to makeShow MoreRelatedSpiritual Formation Across the Lifespan Essay7723 Words   |  31 PagesCHAPTER 9 SPIRITUAL DEVELOPMENT Hope Haslam Straughan Within the social work profession, there is a growing movement affirming that spirituality and religious beliefs are integral to the nature of the person and have a vital influence on human behavior (Hugen, 1998). Canda (1988) identifies spirituality as a basic aspect of human experience, both within and outside the context of religious institutions. 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Half Defence of Positive Accounting Research

Question: Discuss about the Half Defence of Positive Accounting Research. Answer: Introduction The research article Half a Defence of Positive Accounting Research has elaborated on the effectiveness of positive accounting theory in the field of accounting. The main aim of the research article is to examine the ontology and epistemology of the positive accounting theory. The main argument presented by the author in the resrch paper is that positive accounting theory has many weaknesses and emphasises on the importance of incorporating the use of other theoretical models in accounting. In this context, the present paper has undertaken a critical analysis of the research article through summarising its main concepts, identifying the research questions, providing a discussion of its theoretical framework and examining its significance and limitations. Summary of the Article The main argument presented by the author in the research article is the incapability of positive accounting theory in achieving the scientific objectives of accounting. The field of accounting largely incorporates the use of positive accounting theory that influences the human behaviour on decision involving the use of accounting concepts and practices. The theoretical argument in the overall article is about analysing the deficiencies in positive accounting theoretical model that prevents it from making a meaningful contribution in the field of accounting. The effectiveness of positive accounting theory is evaluated in the article with the application of qualitative and quantitative resrch method. Qualitative research method involves collecting theoretical facts in context of the research topic. However, quantitative analysis involves the implementation of statistical testing of hypothesis developed in the research article. It has been inferred from the overall research that there is need of better theoretical models in accounting as positive accounting is not largely capable of for achieving the scientific objectives of accounting. Positive accounting research has made large contribution in developing an understanding of the human behaviour. However, the outcomes achieved through the theory do not adequately meet the needs of operating a research program successfully (Dunmore, 2009). Research Question The main research question addressed in the present study is How positive accounting research is actually practiced and what is required for enhancing its contribution in the broader scientific research projects? The research question has been derived from the theoretical research carried out in the literature review section. The literature review in the article has highlighted about the importance of positive accounting research for understanding the cause and effect relationships across the world. It has provided an in-depth understanding about both the importance and deficiencies of positive accounting research. Theoretical Framework The theoretical framework of the research article has highlighted the significance of implementing the use of positive approach to accounting research. The concept of positive accounting is used by accountant worldwide to take critical decisions about the accounting practices prevalent in an organisation. The theoretical framework has defined positive accounting as a branch of academic accounting research that provides a solid foundation for explaining and predicting the accounting practices. The theory states that business organisations tend to adopt the accounting practices that enhance their financial performance. Thus, positive accounting theory as such forms the value judgement of accountant about the type of accounting practice to be implemented for representing the financial position of a firm (Rhonheimer, 2000). However, the theoretical framework also emphasises on deficiencies present in the positive accounting research that prevents it from attaining the objectives of the r esearch project. The main limitation of the accounting theory is that it does not provide any means of improving the accounting practices. The theory mainly consider the accounting choices at an individual level however business organisations have wide number of choices regarding the accounting practice to be used. The accounting practice that is selected by the accountants by considering the positive accounting theory can have negative effect on the financial performance of a firm (Dunmore, 2009). Positive accounting research is a societal theory and as can influence the human behaviour that may not be beneficial for an organisation growth and development (Deegan, 2014). Thus, the accounting practices should be implemented on the basis of financial condition without considering the rational human behaviour. The accounting researches should aim to develop an understanding of particular accounting practices and should not empathises on the rational behaviour of human psychology while implementing accounting practices. The accountants would develop accounting policies that benefits the overall financial performance of a firm even if the practices violate the rational behaviour in human psychology (Chatfield and Vangermeersch, 2014). The Significance and Limitations of the Article The main limitation of the research article is that it does not properly implement the primary research method. The research does not incorporate the collection of any primary data that and as such lacks practical demonstration to develop a specific answer for the research problem. The article mainly involves the use of secondary literary sources and as such is mainly qualitative in nature (Dunmore, 2009). The theoretical framework used by the author is very vast and should be narrowed down in order to provide a basic answer for the research question. Author has used exploratory research design that is mainly involved the collection of both primary and secondary data to explore the research topic properly. However, the theoretical conclusion drawn by the author is mainly based on the literature review and is not supported from practical demonstration. Thus, the research study lacks objectivity and is mainly subjective in nature. Thus, the limitations have negatively impacted the sign ificance of the research article for further studies in this context. The findings demonstrated by the author thorough the research article needs to be tested practically in future for making valid conclusion (Dunmore, 2009). Conclusion The main point inferred from the research article us that current practice of accounting research does not adequately meet the standards required for carrying a research program successfully. Thus, as such there is high need for developing better theoretical models for conducting accounting research. References Chatfield, M. and Vangermeersch, R. 2014. The History of Accounting (RLE Accounting): An International Encylopedia. Routledge. Deegan, C. 2014. Financial Accounting Theory. McGraw-Hill Education Australia. Deegan, C. 2014. Financial Accounting Theory. McGraw-Hill Education Australia. Dunmore, P.V. 2009. Half a Defence of Positive Accounting Research. Rhonheimer, M. 2000. Natural Law and Practical Reason: A Thomist View of Moral Autonomy. Fordham Univ Press.

Spectrophotometery Essays - Spectroscopy, Spectrophotometry, Cuvette

Spectrophotometery The purpose of this lab experiment is to understand the uses of spectrophotometry. This experiment concentrates on the uses of the spectrophotometer, and using this instrument to specifically determine the absorption spectrum of a cobalt chloride solution, a galactose solution, and to determine an unknown concentration of a galactose solution. Modern biologists frequently use the measurement of light absorption to determine concentration of chemicals. The technique is called spectrophotometry. However, why is light absorbed? Light may be simply scattered by particles, but this is extremely important to the measurement of truly absorbed light. Light is the part of electromagnetic radiation to which the human eye is sensitive. Light is energy, and when absorbed by a chemical it results in a change in energy levels of the chemical. The energy of light depends on its wavelengths. Longer wavelengths, such as infrared, have less energy than shorter wavelengths, such as ultraviolet. A molecule will absorb light energy when a wavelength exactly matches the energy difference between two energy states of the molecule. A spectrophotometer makes use of the transmission of light through a specific solution to determine the concentration of a solute within a solution. It is based on a simple design of passing light of a known wavelength through a sample and measuring the amount of light energy that is transmitted. The design of a single beam spectrophotometer involves a light source, a prism, a sample holder, and a photocell. Connected to each are the appropriate electrical or mechanical to control the illuminating intensity, the wavelengths, and for conversion of energy received to readable data that can be recorded, which is known as a voltage fluctuation. This voltage fluctuation is displayed digitally and recorded for further analysis. The whole idea of spectrophotometery determining the concentration of a compound is based upon Beer's Law. Beer Law, or Beer-Lambert Law is the relationship between absorbance and concentration of an absorbing specimen. Applying Beer's Law can be used to determine a solutes absorption peek, and to plot the absorption spectrum on what is known as a Beer's Law plot or curve. The procedure to find the absorption spectrum of cobalt chloride uses a Beer's Law and spectrophotometry. The spectrophotometer used specifically to this experiment is the spcectronic 20. As with any experiment, a control is needed to base the experiment on. In this case, distilled water will be used as the control. A cuvette, which is a small plastic container used in the instrument to hold the solution, is filled with distilled water. The cuvette is then place in the sample holder. At this time the machine should be set at 400nm, and at this wavelength the transmittance should read 100%. If the instrument does not read 100%T, the instrument needs to be blanked, or adjusted accordingly, until 100%T is achieved. Once the control is achieved, the absorption level of cobalt chloride can know be determined. Taking a clean cuvette, adding around 6ml of cobalt chloride to it, it is placed in the machine and the wavelength is kept at 400nm. According to the data the spectrophotometer reads, the optical density of cobalt chloride at a wavelength of 400nm is 0.03100. Once this information is recorded, the cuvette of cobalt chloride is removed. The machine is then set to 410nm, and the control cuvette of distilled water is placed back in the machine. The machine is then re-blanked, being sure that it reads 100%T. Remove the cuvette of distilled water and place the cuvette of cobalt chloride in the machine. At 410nm, the optical density of cobalt chloride is 0.043000, and this information is recorded. The above procedure is repeated continually, at wavelength settings that are at 10nm intervals. For example, next would be 420nm, then 430nm, and so on. It is very important to be sure to re-blank the spectrophotometer after every change of wavelength. Cobalt chloride, at a wavelength of 510nm, has an optical density of 0.51200. As can be seen in figures 1-1 and 1-2, this is the wavelength at which cobalt chloride absorbs maximally. The next procedure involved in the experiment is to develop a standard curve, using Beer's Law, for galactose. Six test tubes are used for the first part of the experiment. Each test tube should be clearly labeled 1 through 6 on the top of each tube, using a wax pencil. Also, one large beaker should be filled with distilled water and sitting on a hot plate in preparation for boiling. Six different concentrations of galactose are going to be needed, corresponding to the six test tubes. The