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Nike Inc.
Cost of Capital
Anung Triningrum | Risyanto Krisna S | Muhtad Fadly|Hasnan Ridwan | Diaz
Nike Inc.
Case Background :
whether to buy Nikes stock Nike has experienced sales growth decline, declines in profits and market share Nike has reveal that it would increase exposure in mid-price footwear and apparel lines. It also commits to cut down expenses The market responded mixed signals to Nikes changes. Kimi Ford has done a cash flow estimation, and ask her assistant, Joanna Cohen to estimate cost of capital
What is WACC?
The cost of capital is the rate of return required by a capital provider in exchange for foregoing an investment in another project or business with similar risk. Thus, it is also known as an opportunity cost WACC is calculated taking into account the relative weights of each component of the capital structure- debt and equity, and is used to see if the investment is worthwhile to undertake The WACC is set by the investors (or markets), not by managers. Therefore, we cannot observe the true WACC, we can only estimate it.
The minimum return that a company must earn on existing asset base to satisfy its creditors, owners, and other providers of capital
WACC ?
WACC = (E/(D+E)) Ke + (D/(D+E)) Kd (1 - T) = (89.95% x 9.81%) + ((10.05% x 7.51%) (1 0.38)) = 9.29%