Nike, Inc.

Part of Nikes strategy to revitalize the company was aimed at contending their revenues which had been fixed for quadruple years and their net income which had fallen to almost $220M. Additionally, Nike had been losing overall merchandise dispense and the strong dollar had adversely affected revenue. To address those issues, management was planning to; (1) raise revenue by under wined increased levels of athletic-shoe products in the mid-priced segment. (2) Push its well performing cut back line, and (3), control expenses.

Kimi Ford, a portfolio manager at a shared fund management firm, was considering adding Nikes shares to the portfolio she managed. To come to a decision she asked Joanna Cohen, her assistant, to develop a discounted cash flow forecast. Her analysis had a a couple of(prenominal) flaws that will be pointed out in this paper by a new analysis.

Cohens first mistake was to use Nikes track record value of equity in her calculation of the WACC; $3,494.50. Though the give value is an accepted estimate of the debt value, the equitys book value is an faulty measure of the value perceived by the shareholders, so an tangential source when finding the equity value. Moreover, Nike is a public traded firm, therefore its equity value can be best reflected by its market value.

Market Value of Equity = Market price of the share * Number of Shares Outstanding

= $42.09* 271.5 = $11,427.44

Book Value of debt = Current portion of long terminal figure debt + Notes payable

= $855.3 + $435.9 = $1,291.2

E / (D+E) = $11,427.44 / ($11,427.44 + $1,291.2) = 0.89847 which is 90% of total capital

D / (D+E) = $1,291.2 / ($11,427.44 + $1,291.2) = 0.1015 which is 10% of total capital

D + E = $12,718.635 million

There is an fantastic difference between the book value of...

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