Nike Cost of Capital Harvard Case Solution & Analysis

Nike Cost of Capital Case Study Solution

On the basis of the modified weighted average cost of capital; the enterprise value is calculated as $15801.7,out of which the current outstanding debt of $1296.6 is deducted in order to get the equity value of $15801.7. The equity value per share is calculated by dividing the equity value by the number of shares outstanding, resulting in the equity value per share of $58.20, which is significantly greater than the current market price of $42.09. It provides strong foundation of buying the shares of Nike due to the fact that the company’s shares are undervalued and it has the major potential to grow in value, in the near future. Furthermore, the goal stated by the management of the company has the potential to become the source of generating healthy profit returns, over time.


Before makingthe final decision of buying the stock of Nike; Kimi Ford is advised to decide whether she wants to buy the stock for the short term or the long term. If the decision is to buy the long term shares, then the decision of investment is good one, and if the decision is to buy the short term; she is advised to be cautious about the rapidly changing industry and trends in the footwear industry. All in all, Kimi should takethe decision of purchasing the Nike’s stocksbecause of the reason that it is undervalued, safe and has  great potential to grow in value, in future.

Appendix A – WACC

Market value of equity current price of shares * No of shares outstanding
Price of shares 42.09
No of shares outstanding 271.5
Market value of equity (million) 11427.435
Market value of debt Current portion of LTD + notes payable + LTD
Market value of debt 1296.6
Weight of debt 0.101901637
Weight of equity 0.898098363
Cost of debt 7.160%
Face value 1000
Current price 95.6
Coupon rate 6.75%
PMT 100
N 40
After tax cost of debt 4.439%
Cost of equity  
10 year treasury bond rate 5.74%
Risk premium 5.90%
Beta 0.69
Cost of equity 0.09811
Cost of capital 0.092636048



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