Nike, Inc. case study
Nike, Inc. is an American company that is involved into the designing, development and
selling of shoes, apparel, equipment, accessories and services. It is one of largest worlds
suppliers and manufacturer of sports equipment in the world. In this case study report, I
will analyze the cost of capitals and make a comparison with Joanna Cohens result with
my calculation, then get further analysis.
From the companys point of view, the cost of capital is a term used in the field of financial
investment to refer to the cost of a companys fund. From the investors point of view, the
cost of capital is the shareholders required return on a portfolio of companys securities. We
can evaluate new projects that a company ready to launch. It is a very important
benchmark for us to evaluate an investing project. I also need to calculate the WAAC
(required return), which is the weighted average cost of capital. It is the rate that a
company is expected to pay on average to all its security holders to finance its assets. We
can use WACC to see if the investment projects available to them are worthwhile to
undertake.
There are several methods to calculate the WACC, which are Dividend Discount Model,
Earnings Capitalization Model and CAPM Model. Because there is no substantial
dividend, I wont use DDM method. Moreover, because it ignores the growth of company, I
wont use ECM methods. I will use CAPM methods to calculate WWAC of Nike, which is
the same method as Joanna Cohens.
