Homework: Nike Case Write-Up
Mergers & Acquisitions
Introduction
The Nike Case Study is intended to serve as an introduction to the calculation of the Weighted-Average Cost of Capital (WACC) of the firm.
The case provides a WACC calculation that contains errors based on conceptual misunderstandings. Students will identify and explain the mistakes in the analysis. The case assumes that students have been exposed to the WACC, CAPM, the dividend discount model, and the earnings capitalization model.
Task
Complete the Nike Case Study reading (found in the Readings and Course Materials folder).
Put yourself in the role of one of the stakeholders in the case, and reflect on the information in the document. Make sure to address the following items:
a. What is the WACC and why is it important to estimate a firm's cost of capital? [2 to 3 sentences max.]
b. Calculate your own WACC for Nike. Note the following requirements:
i. Calculate the Cost of Debt based on the information provided in the case. [Fill in the highlighted Excel cells; explain your calculation briefly]
ii. When you are calculating the Cost of Equity, do it under three different scenarios:
a) CAPM
b) Dividend Discount Model
c) Earnings Capitalization method
iii. Summarize what the WACC would be in 3 different scenarios: using the Cost of Debt and three different Cost of Equity percentages.
c. Highlight/note any differences versus Joanna Cohen's calculation.
d. Which of your three WACC calculations (based on the 3 different Costs of Equity) do you think makes the most sense and why?
Format your homework according to the following formatting requirements:
(1) The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
(2) The response also includes a cover page containing the title of the homework, the student's name, the course title, and the date. The cover page is not included in the required page length.
(3) Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
Attachment:- Nike-Inc-Cost-of-Capital.rar