Nike Case Write-up

Nike Case Write-up - Nike Inc: WACC Calculation Assumption:...

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Nike Inc: WACC Calculation Assumption: We agree with Cohen’s assumption to use the single cost of capital. As she mentioned, most of Nike’s business segments are sports-related except for the Cole Haan line which would not have an important impact on the cost of capital of the whole company. Thus, we decided to compute single cost of capital for the whole company. The WACC Cohen calculated by using the CAPM for Nike Inc is 8.4%. We don’t agree with her figure. The problems with Cohen’s calculations are the use of book value rather than market value and the method to derive cost of debt. In this case, the result may not reflect the appropriate estimate. 1. Value of Debt From the exhibit 3, we could find that Value of debt=current portion of long-term debt+ notes payable+ long-term debt
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The above factors should be valued at market basis, while in Cohen’s calculation, she used the book value. The current portion of long-term debt and notes payable already reflect the market value e q 7 7 7 F F , 855.3+0.956*(5.4+435.9) e 50.92 e 55.68 e . It is the long-term debt that we should discount to calculate the market value. Because the
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This note was uploaded on 11/30/2009 for the course FIN fin taught by Professor Ad during the Spring '09 term at Temple.

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Nike Case Write-up - Nike Inc: WACC Calculation Assumption:...

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