From a profitability standpoint, Home Depot created value, according to their 12.3% WACC
found in exhibit 3. They are consistently creating value in all years (97-01) beings their ROC is
higher than their WACC. Considering the Industry ROE average was 17.1% in 1997 according to
Wikinvest.com, Home Depot was a little behind the game as far as creating value for their
investors. Home Depots Gross Margin increased steadily each year, indicating higher profits, as
well as their operating margin increasing to a high in 99 and leveling out around 2001 due to the
economic factors erupting after 9/11. Their NOPAT margin is higher than their biggest
competitor lowes so they were consistently producing more returns, in conjunction with greater
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?
If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be
prepared to justify your assumptions.
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?
What should Kimi Ford recommend regarding an investment in Nike?
The Jacobs Division
1.If you were Mr. Soderberg, would you recommend that Mr. Reynolds accept
the Silicone-X project?
If not, why not?
2. If you recommend acceptance, how should the necessary plant capacity
3. How should Mr. Soderberg take the alternative prices into account in
making his decision about the Silicone-X project?
4. From MacFadden's point of view, how do you like Mr. Reynolds's method of