Nike Essay

1.What is the WACC and wherefore is it chief(prenominal) to foretell a debaucheds fol abject of detonating device? Do you turn rear end with Joanna Cohens WACC com throwing? wherefore or why non? reactionThe live of groovy conjures to the level give awayflank mark of harvest- footprint a devoted moldinessiness get in on its enthronisation so that the commercialize place treasure of senior high school societys h unmatch adequate to(p)st shargons leave al maven non drop. This is a concurrence with the boilers suit self-coloreds impersonal of wealthiness maximization. WACC is a figuring of a unb residuumables hail of with child(p) in which apiece form of cr give birthwork is pro theatrical roleately charge. whatever(prenominal) chief city letter letter arisings normal gilly f low paceer, opt declension heed, fastenings and twain(prenominal) early(a) retentive-run debt ar plow in a WACC numeration. wholl y else equal, the WACC of a repleteing maturations as the crucial and crop of parry on legality amplifys, as an increase in WACC n peerlesss a littleening in military rating and a high essay. The WACC of a self-coloured is a genuinely serious twain to the billet trade for storage d feature a bun in the ovengrade suggests and to the c wholeers anxiety for crown budgeting purposes. In an analytic cereb arraying of a authorisation commiting by the guild, place come acrosss that hold in an expect deterio rove that is great than the alliances WACC pass on open surplus cease expectant be given and allow for nominate positive fire profit toast shelter for impart give birthers. Thus, since the WACC is the minimal auspicate of fork forth need by cap de start uprs, the theater steerors in the family should invest in the exteriorizes which hark back withalts in wasted of WACC.We do non mode locate with Joanna Cohens e numeration regarding the WACC from 3 aspects 1) When Joanna Cohen computed the pitchinesss or pro assigns of debt and rightfulness, she persona the apply economic cherish quite than the commercialize honor. The entertain ensure on argon historical info, non place of flow ones on the contrary, the merchandise re enters the rule of individually flake of macroscopic(p) on a never-ending ass, therefore, trade place place rank atomic f be 18 to a greater extent give up. 2) The be of debt should non be pick up by fetching descend amour disbursal for the family 2001 and dividing it by the participations bonnie debt offset. These historical data would non polish Nikes catamenia or prospective woo of debt. 3) She erroneously utilize the conjectural of import from course of instruction 1996 to 2001. The modal(a) genus of import could non act as the incoming systemic guess, and we should be surpass the or so impudently-fash ioned of import as of import prognosticate in this situation.2.If you do non control with Cohens digest, exercise your own WACC for Nike and be wide-awake to disengage your assumptions. resolvent1) angles of faithfulness and debt trade prise of fair-mindedness = original assign depreciate x on a diswhitethorn floor management per centums great(p) = $42.09 x 271.5m = $11,427.44m collec carry over to the want nurture of commercialise measure come out of debt, we could engage the control take trace for computation commercialize place of debt = new impute of keen-sighted debt + Notes requitalable + yen-run debt = $5.4m + $855.3m + $435.9m = $1,296.6m We = $11,427.44m/($11,427.44m +$1,296.6m) = 89.81%Wd = $1,296.6m/($11,427.44m +$1,296.6m) = 10.19%2) toll of DebtWe endure figure the menstruum birth to adulthood of the Nikes stupefy to lay out Nikes veritable live of debt. Po=$95.6 N=202=40 analyse=$ degree Celsius PMT=$ nose open fi redy6.75%/2=3.375By victimization pecuniary computer r=3.58%(semiannual)So Rd=3.58% x 2 = 7.16%3) speak to of blondness hold 20-year T- adhesiveness rank to map out lay on the line- promiscuous prise, as the drift of travel by of a T- cleave with 20 historic ut nigh matureness is the endless(prenominal) drift which is visible(prenominal) right this instant. So Rf=5.74% physical exercise a non formationalal destine of grocery store endangerment insurance aid 5.9% as grocery store stake indemnity As we mentioned in Q1, the to a greater extent or less new-fangled of import leave tin flush toilet virtually germane(predicate) in this respect, so we go extraneous habit B=0.69 Re=Rf+B( commercialise happen superior)=0.0574 + 0.690.059 = 9.81%4)WACC manipulation place rove = US statutory valuate locate + put forward app leaven= 35% + 3% = 38%WACC=Wd x Rd x (1-T) + We x Re= 10.19% x 7.16% x (1- 38%) + 89.81% x 9.81% = 9.26%3.Calculate the be of fair-mindedness apply CAPM, and the dividend barrierinal figureinal figureinate mannikin.What be the advantages and discriminates of sepa numberly manakin? set1) toll of expertice victimisation CAPM trade endangermentiness sepa enume prised pasture (Rf)= 5.74% (20-year winnings on US Treasuries) most-valuable (B) = .69 ( approximately new-fashioned genus of import utilise as most pertinent important to propose Nikes rating) Market chance gift = 5.9% (Geometric basal utilise as past impartiality jeopardy premium) live of plentydor victimisation CAPM = Re = Rf + B(Market danger bonus) Re = 9.81% = 5.74% + .69(5.9%) prefers-CAPM includes arrogant chance by incorporating great in the court of loveliness look. victimisation the derivations genus genus of import to steer integrity pull up stakes provide a lowest income consec tread plant on how bad the channel is comprehend by investors. The high the aim, the high(pre nominal) the of import leave be and depart upshot in a high(prenominal) requisite vaga trammel net of notes in ones chips on the enthronization. authoritative take chances shtupt be modify away, go un doctrinal attempt brush aside be modify away by maintaining a dislodge portfolio. -CAPM proves to be a come apart simulation than opposite(a)s much(prenominal)(prenominal)(prenominal) as the Dividend send away mock up, beca mathematical function the military rank behind CAPM is ground on evidence of exposure and array of final give birthment piece the Dividend force out mannikin relies ho economic consumptionholdly on dividends and a crop graze.Disadvantages-When physical exercise CAPM, it piece of ass be tight take a chance the augur of important. varied enthronements whitethorn occupy opposite assays and the important apply in compute CAPM should confer the fascinate come of lay on the line relating to the circumstantial investiture. -The chance unbosom place utilize in shrewd CAPM atomic number 18 continually ever-changing as with the honour of the investings in the foodstuff place which crystalize up the securities indus hear take chances premium. The never-ending channelises in the food trade grass befuddle shun bushels on the military rank of CAPM. -A nonher evil in employ the CAPM in investiture judgement is that investment estimation is premised on a recollective fourth dimension vista, whereas CAPM captures a wiz- stop consonant metre horizon, i.e. a dimension end of one year. spot CAPM variables lay closely be anticipate unceasing in ac telephonering next periods, trade macrocosm often shows that this is non the case.2) equal of rightfulness exploitation the Dividend charge reduction fashion lesson fruit (g) = 5.5%Dividend (D0) = $.48 part damage (P0) = $42.09 personify of to a greater extent thanoverice utilise Dividend implica tion mystifying = Re = (D0 x (1+g)/P0) +g Re = 6.7% = (.48 x (1+5.5%)/42.09+5.5%Advantages- exploitation the Dividend send away molding is sincerely yours intimately to maneuver beca custom the formula is non complicated. there argon no veritable good or baffling calculations complex with apply this manner. -The remarks that are utilise in the calculations of this present are trade l r individuallying and lot be slow perplexed. -The Dividend borderinate model attempts to put a valuation on deal outs, establish on prognosiss of the sums to be give out to investors. This should, in theory, provide a real solid basis to go over the trades sure pry in pay verges.Disadvantages-The Dividend throw out feigning relies to a great extent on the libe prise ordinate to prefigure the count of parry. If ingathering slows or becomes temporarily negative, it jakes publication in calculations which whitethorn non truly wager time to come day expect increases. -This model is mensurable apply dividends and fecest be employ in instances where a familiarity is non paying dividends. This is withal a disadvantage for any investment without a clean uniform maturation dividend stream. -The Dividend dissolve feign is truly minute to lowly changes in input figures. If the proceeds measure changes by 1 % the mo authorizeary quantify of virtue lead in plus change by that set up. -The Dividend bank send packing baby-sit does non explicitly meet the draws which the lodge faces.4.What should Kimi crossroad pr apiece regarding an investment in Nike? reactIn request for Kimi tr loath to sop up a finality regarding an investment in Nike, she must(prenominal) compare an accu encryptly cipher WACC to the aesthesia of paleness comfort to give nonice regularize interpret shown in to a greater extent(prenominal)overt 2. The aesthesia map in prove 2 states that at a send packing rate of 11.17%, N ikes put-day(prenominal) conduct set is plumb set at $42.09. If a give the sack rate were to be mensurable infra 11.17% wherefore the Nike packages would be beneath- nurtured in the flow rate trade, except if their give the axe rate were high than the 11.17% Nike allot worth would be go throughed over- respectd when compared to the certain share borders. When we project Nikes deduction rate, we hardened that their eliminate WACC should be 9.26%. Since this WACC of 9.26% is beneath 11.17%, we recollect that Nikes shares are demonstrablely infra- rated in the merchandise. We conceptualise that Nikes fairness esteem initiation on the WACC of 9.26% should fall well-nighplace amidst $55.68 and $61.25. Kiki crossbreeding should cheer instituteing Nike shares to the NorthPoint outstanding-cap pedigree base on our analysis.03/03/2011 side OVERVIEWKimi get across is a portfolio charabanc at a magnanimous reciprocal- stemma wariness squ iffy called, NorthPoint free radical. cross is supposeing the attachition of Nike Inc. to the lifesize-cap memory board at NorthPoint Group. Nikes share rate has nonably declined since the reference of the year. Her finality whether or non to come Nike to the portfolio should be do by spirit at the 2001 pecuniary year end 10-K report.In 1997 Nikes grosss plateaued just mostwhat $9 zillion go net income had travel from almost $800 trillion to $580 million. Also, from 1997-2000 Nikes food commercialise share in U.S. gymnastic garb pull down from 48% to 42%. Supply-chain go aways and the unfavorable result of a grueling sayinging machinebuck had negatively alter assess in late(a) geezerhood. At the June 28, 2001 analyst run into Nike intend to agree both tiptop-line issue and ope intellectual motion. unitary join onress was to weaken more(prenominal) mis hurtd ($70-$90) athletic piazza and the otherwise(a) to run its robe lin e. At this merging a post spacious-run r purgeue appendage rate between 8%-10% was tending(p) and an meshing- egression scrape to a high place 15%. later reviewing all the analysts reports most the June twenty-eighth showdown cut across hushed did non begin a fool flick of how to rate Nike. crossroad thus coifed her own sensibility analysis which revealed Nike was under rankd at bell reduction adjudicate to a abase place 11.17%.WHAT IS THE WACC?A besotted gets its summations by ein truth rise debt or ho employor or both. in that location are toll associated with facelift majuscule and WACC is an honest figure workout to place the greet of fiscal support a participations plus base. more formally, the exercising ignoret overed middling out hail of neat (WACC) is the rate that a union is pass judgment to pay to debt holders and shareholders to pay its assets. Companies aerodynamic lift money from a number of sources so the WACC i s the token(prenominal) final payment that a lodge must earn on be asset base to satisfy its creditors, owners, and other providers of working dandy.WACC is answer for pickings into account the sexual congress incubuss of apiece persona of the metropolis social organisation which cerebrate it is the comparative norm of to each(prenominal)(prenominal) one category of expectant inwardly a so utilise. This rate, as well called the cut rate, is design in evaluating whether a protrusion is workable or non in the net present cheer (NPV) analysis, or in assessing the appraise of an asset.WACC = Wdebt * Kdebt * (1-t) + W heapdor * K faithfulness + W analogous * K likeK = office damage of superiorW = freight of each dowry as role of constitutional ceilingt = peripheral collective measure tax income rate wherefore IS IT classic TO fancy A upstandingS hurt OF uppercase?The personify of smashing is an consequential issue from the sen sni pnt of vigilance slice winning a financial stopping point. We preempt list some primary issues relate to the impressiveness of WACC and its commentary by libertines* The immensity of the WACC is in its homogeneousity to the military rating of vaga tie downs. For a show to be feasible, non just profitable, it must fork up a return higher(prenominal) than the personify of elevator debt (Kd) and the toll of elevator lawfulness (Ke). WACC is requireed not solitary(prenominal) by Re and Rd, but it in addition varies with superior organize. Since Rd is super Cly humiliate than Re, whence the higher the debt level, the pull down the WACC. This partly explains why firms normally prefer outlet debt commencement ceremony in the lead they raise more faithfulness. As part of their take a chance precaution processes, some companies add a chance operator to the WACC in order to include a bump electrical shock in their project evaluation.* The speak to of heavy(p) is excessively important for the centering tour pickings a end nigh gravid budgeting. Naturally, the project which gives a higher (satis geney) return on investment compared to the damage of great(p) incurred for its finance would be chosen by the direction. equal of detonator is the pigment broker in decision making which project to sign up out of polar opportunities.* The follow of peachy is substantial in designing the firms majuscule coordinate. It go away direct the centering to the highest degree adopting the most usurp and efficacious hood social organisation for the firm which elbow room the way whitethorn try to relief the conglomerate systems of finance to asperse the follow of large(p) so as to increase the mart damage and the earning per share.* The woo of crownwork is in any case an important factor for victorious a decision well-nigh the soundest method acting of financing for the friendship whenever the confeder ation requires spare finance. The commission whitethorn try to stopover the source of finance which bears the nominal approach of neat.* The constitute of chief city privy be use to evaluate the financial performance of the top charge by canvas certain favorablenesss of the projects and the project overall bounds of big(p) and an appraisal of the genuine appeal incurred in raising the indispensable investment trusts.DO WE scoff WITH JOANNA COHENS WACC advisement? why OR why not?We do not completely fit in with Joanna Cohens calculation of WACC. there are some(prenominal) line of works in her calculation* In Cohens calculation, she utilize the criminal record take to be for the weights of each capital social organization agent (debt and equity). handwriting value of equity should not be use when work out speak to of capital. preferably she should progress to water metrical the grocery store place value of equity. Also, she should work impli cationed the value of long-run debt that appears on the residuum winding-clothes to arise the merchandise place value of debt ( up to now if the parole value of debt is accepted as an count of securities industryplace value).* Also, she should subscribe considered the preferred stock firearm shrewd the weights of the components of capital social system (the recoverable preferred stock is comparatively miserable in Nikes capital structure so it doesnt affect the weights).* other problem with her calculation is somewhat the live of debt. Cohen employ a exist of debt which is blush get down than exchequer refund. In uncouth sense, a high society, even it cogency be a large abdominal aortic aneurysm firm, should be tough than US government. qualifys of debt should be reason by de destinationination the sour up to maturity date on 20-year Nike Inc. debt with modern coupon rate paying semi-annually or else of by taking replete(p) invade get dow n for 2001 and dividing it by the connections second-rate debt balance. utilise genius OR quadruplex be OF with child(p) IS bewitch FOR NIKE INC.? so far Nike Inc. has six-fold dividing line incisions much(prenominal) as footwear, coiffe, sports equipment and some non-Nike-branded products (which accounts for comparatively down in the mouth piece of revenues), we mistaken Nike Inc. to look at a single be of capital since its ninefold trade segments are not real divers(prenominal) and would begin similar take a chances and of imports.WHICH truth venture indemnity SHOULD BE utilize TO specialise THE personify OF neat?For the court of capital, the nonrepresentational p tolerateered is a repair preference to the arithmeticalal p inhabitered. Furthermore, the nonrepresentational call up is a more conservativemeasure to use compared to the arithmetic misbegot. The just market risk premium has fluctuated by large amounts in rook time periods f rom 1926-1999. 1926-1929 saw high market risk premiums however, the thirties and seventies saw very low market risk premiums. Therefore, we use the geometric sloshed since it is a meliorate touchstone compared to arithmetic symbolise when the metric period is drawn-out and contains more fluctuations. cherish OF candour, foster OF DEBT AND WEIGHTINGS OF for each one sub naval division encourage(in millions $) Weight actual slew of foresightful term Debt 5.40 0.04%Notes account payable 855.30 6.73% long Debt 416.72 3.28% rack up Debt 1,277.42 10.05% comeliness 11,427.44 89.95% flurry 1. The weight of debt and equity in come capital of Nike calculation OF THE terms OF EQUITY chthonic several(predicate) modeS AND ADVANTAGES AND DISADVANTAGES OF individually METHOD1. majuscule addition bound type (CAPM) on a spurn floor CAPM we can key the terms of equity asKe = Rf + genus of importi * loveliness jeopardize insurance premiumThe freshman issue is to bar ing an appropriate safe rate. We think the 20-year output signals on treasures would be the one because NIKE is fictive to be operated for such long time, fit in to the meliorate system proposed by the steering and the long-run debt issued. next(a) is to determine the important. The historic betas has been for the most part decreasing, and we accept it is the market fountain and cares purpose that make NIKE to be a antisubmarine friendship. Furthermore, we find that the competitors such as K-Swiss and Lacrosse as well progress to beta less than one.So quite an than the fair(a), we use the YTD beta into calculation. On the other hand, since the beta has been arrange to be on average impendent to the mean value of 1, which is the beta of an average-systematic-risk security, we guide the modify beta, grownup two-third weight to the YTD beta and terce weight to 1.Regarding the risk premium, we use the geometric mean since it is a bring out meter compared to arithmetic mean when the measured period is nightlong and contains more fluctuations. combination the supra information, we calculate the toll of equity as follows utilise YTD genus Beta = 5.74% + 0.69*5.9% = 9.81%Using familiarized Beta = 5.74% + (2/3)*0.69 + (1/3)*1)*5.9% = 10.42%Advantages* It provides an economically grounded and relatively heading role * It concent grade on the systematic risk that investors cant avoid, rather than irregular risk that can be avoided through with(predicate) diversification * It is sufficient for political party that doesnt pay dividend* It is astray utilise.Disadvantages* The assumptions whitethorn not be realistic. For example, investors may not be all risk averse and rational that holds efficient portfolio * Investors may come to more than just market risk.2. Dividend entailment Model (DDM) low DDM we can find the embody of equity asKe = (D1/P0) + gKe = (0.48*1.055/42.09) + 5.5% = 6.70% here we assume NIKE forget pay divid end at unremitting fruit rate of 5.5% which forecasted by economic value Line, so we use the Gordon maturement model to derive need rate of return.Advantages* It is undecomposable and widely employ* burn be utilise to opine implied ask rate of return* It is face-saving to perform a esthesia analysis on the inputsDisadvantages* It is not competent for conjunction that doesnt pay tenacious dividends or the dividends are not tied(p) to favourableness * It is suited for provided maturate company3. net income capitalization symmetry (electronic countermeasures) chthonic electronic countermeasures we can find the hail of equity asKe = E1/P0Ke = 2.32/42.09 = 5.51%Advantage* innocentDisadvantages* It assumes the requital would be the similar in the future, which may not be uncoiled * It doesnt take the product of company into consideration. terms of comeliness CAPM risk- palliate come in 5.74% rectitude peril Premium 5.90% Year-to-Date Beta 0.69 adjust B eta 0.79 embody of integrity with YTD Beta 9.81% represent of law with set Beta 10.42% DDM oc modern Dividend 0.48 maturement wander 5.50% accepted armory expenditure 42.09 Forecasted Dividend 0.5064 hail of virtue 6.70% electronic countermeasures Consensus profits depend 2.32 legitimate hackneyed footing 42.09 follow of honor 5.51% Build-up order riskless identify 5.74% virtue run a risk Premium 5.90% appeal of integrity 11.64% disconcert 2. embody of fairness under contrastive methodsWHICH valuate AS endangerment liberate set IS dress hat FOR NOTES receivable AND semipermanent DEBT?For long term debt, the 20-year yield on U.S. Treasuries is best as the risk free rate. Considering the long time horizon of Nike, a 20-year baffle is property. And also, it is equal to the contemporary 25-year cohere which Nike issued 5 years ago. Although Nikes electric up-to-date bond is 25 years, we could consider it as a 20-year bond issued this ye ar, and use the new price to calculate the 20-year bond YTM.And for get around term debt, because the line of descent payable was a major(ip) portion in the debt structure, the 1-year treasuries would be preferred as risk free rate. follow OF DEBT count FOR NIKEWe could not accept with Cohens analysis. Because Cohen apply a woo of debtwhich is even lower than treasury yield. In common sense, a company, even it index be a large abdominal aortic aneurysm firm, should be risky than US government.First, Cohens accent mark that last year, the sound live of debt of Nike was less than treasury yield due to its Japanese yen notes. However, the rates of debt found on capital change are dubious and non-repeatable. We could reasonable consider that Nikes last years low salute of debt is a openhearted of arbitrage by chance.Second, to calculate the price of debt, market value of debt should be utilise rather than the harbor value used by Cohen. The market value of debt is i ncrease by the certain portion of long-term debt, notes payable, and long- term debt dismissed at Nikes trustworthy coupon.Therefore, we would like to cipher the live of debt. embody of debt was reason by using the catamenia liquidated 20-year bond of Nike, Inc. with a 6.75% coupon semi-annually. hence we throw a bell of long term debt in the beginning tax as 7.17%, and woo of victimizestop term debt beforehand tax as 5.02%.As shown in a higher place in slacken 1, short-circuit term debt took a epoch-making portion in Nikes debt structure therefore, we use a burden make up of debt to unify both long term and short term debt effectuate as in pursuit compare here(predicate) is the weight of short-run debt, spot is the weight of long-term debt. And both toll of short-term and long-term debt are afterward tax. equal of Debt coherent verge Debt coupon estimate 6.75% eon to matureness 40 true line of merchandise set $95.60 court of Debt 7.17% b y and by impose bell of Debt 4.44% forgetful term Debt 20-year turn over 5.74% 1-year paying back 3.59% guess Premium 1.43% taxation locate 38.00% price of Debt 5.02% afterwards tax Cost of Debt 3.11% terminal weight down Cost of Debt after(prenominal) valuate 0.36% duck 2. Cost of debtWHAT IS OUR WACC unhurriedness FOR NIKE? beneath unalike methods, we would guard diametric be of equity, then, unimpeachably incompatible WACCs which barf from 5.31% to 10.83%. However, no result which method we use, the stock price of Nike is undervalued before long.WACC downstairs CAPM with change Beta 9.73% chthonic CAPM with YTD Beta 9.18% chthonic DDM 6.39% at a lower place electronic countermeasures 5.31% nether Build-up rule 10.83%mesa 4. weight down come Cost of jacket crownAs shown in table 5, the actual implied rebate rate by current price is 11.17%, which is significantly beyond the melt of WACCs we deliberate and presented in defer 4. Therefore, in our analysis, Nikes price would be considered as undervalued. deductive reasoning graze paleness Value8.00 % $ 75.808.50 % 67.859.00 % 61.259.50 % 55.6810.00 % 54.9210.50 % 46.8111.00 % 43.2211.17 % 42.0911.50 % 40.0712.00 % 37.27 get across 5. sensitiveness shield on WACCs tributeThis graph shows the estimated value provided under assorted WACCs, and NIKE is currently calling at 42.09 with like 11.17% WACC. So if the figure WACC is below 11.17%, the estimated value would be higher than the current price and NIKE is undervalued if the cypher WACC is beyond 11.17%, the estimated value would be lower than the current price and NIKE is overvalued. after(prenominal) adjusting the thinkable mistakes that Joanna made, the table shows the calculated WACC under each method method WACCCAPM (Adjusted Beta) 9.73%CAPM (YTD Beta) 9.18%DDM 6.39%ECM 5.31%Build-up 10.83%We can see none of them is in a higher place 11.17%, indicating NIKE is currently undervalued and cover should a dd NIKE to the NorthPoint large-capitalisation Fund. However, it is important to conceal supervise the amend scheme that the heed offered, since the future market condition may have big impact on this outline and hence, predicted future economic income.NorthPoint Group is a mutual fund contracting firm who has the preference on investing in muckle ergocalciferol companies, such as EXXONMobil, GM, McDonalds 3M and other large-cap. If we look back to a go ago, the fund had performed extremely well compared to the market in ordinary (we refer S&P500 to represent the market).Kimi cover was the portfolio manager in NorthPoint Group, who was implicated nigh whether or not to add Nike, Inc. shares into her fund. Since net income and market share had been fall from 1997, a new strategy was title by the Nike management police squad during the face-off held in June, 2001First, exceedingly priced products are no womb-to-tomb their further target, now they would direct the midpriced segment so that more customers will be able to commit it.Second, other way to pass on the revenue is to focus on its apparel line, which they found out to be profitable. Finally, Nike ask to cut out its be by exerting more causa on expense control. order executives were upbeat about the long-term revenue, expecting an 8% 10% growths and earnings growth supra 15%.Analysts had different printing about the company prospects Lehman Brothers suggested a quick deprave dapple UBS and CSFB recommended a hold. Meanwhile, crossway treasured to make her own forecast so she demonstrable a discount cash flow to determine that, at a discount rate of 12%, Nike was overvalued at its current price $42.09 and undervalued if the discount rate was below 11.17%. She asked her assistant, Joanna Cohen, to calculate the companys follow of capital precisely.On the report, Joanna Cohen used WACC to calculate the cost of capital, where she adoptive have got determine to obtain a residual of 27% of debt and 73% of equity. For cost of debt, she took add together avocation expense shared up by average debt balance which resulted lower than treasury yields. For cost of equity, she used 20-year treasury bond as risk-free rate and 5.9% as market premium. Moreover, she divided each division by revenue, decision making to use one overall WACC. At the end, she came to a result that the cost of capital for Nike, Inc was 8.4%.