TREVECCA NAZARENE UNIVERSITY
MBA ONLINE FINANCE
STUDY QUESTIONS FOR THE NIKE CASE
1. What is the WACC and why is it important to estimate a
firm’s cost of capital? How is the WACC used? Is
the WACC set by investors or by managers? Explain.
Did Cohen make any mistakes in her analysis?
Explain.
2. Calculate the costs of equity using CAPM, the dividend
growth model, and the earnings capitalization ratio
(Note: The formula for the earnings capitalization
ratio is Re = EPS1/P, where EPS1 is the estimated EPS
for next year, and P is the current stock price).
Show your calculations, and identify and justify the
sources for your data. Explain the advantages and
disadvantages of each method?
3. What is your estimate of the WACC? (Use Excel for
your calculations, and submit your Excel sheet along
with your answer.) Identify the sources of data
used. Justify your assumptions. Note that the price
of the bond in Exhibit 4 is listed as $95.60 but it
is really 95.6% of par.
4. Based on your estimate of the WACC, what is your
estimate of the value of a share of Nike stock? (Use
Excel for your calculations, and submit your Excel
sheet along with your answer.) What should Kimi Ford
recommend regarding an investment in Nike? Why?