General Objective: The objective of this case is to provide you with an understanding of weighted-average cost of capital. You are put in the position of a decision maker or someone who recommends courses of action with respect to specific investment decisions. In so doing, you learn to think about the issues at hand, not just about the techniques. Your task: The case provides a WACC calculation that contains errors based on conceptual misunderstandings. Your task is to identify and explain the mistakes in the analysis. Specifically, try to answer the following questions: 1. What is WACC and why it is important to estimate a firm’s WACC? 2. Identify the mistakes in Joanna Cohen’s WACC calculation. Please explain why the calculation is incorrect. 3. Calculate the cost of equity and the cost of debt using the methods discussed in class. (Hint: you will need to find YTM using the approach discussed in topic “bond”) 4. Calculate your own WACC for Nike and justify your assumptions. 5. Use the Excel file “Third case Nike discounted cash flow model.xlsx” provided with the case and the WACC that you calculated above to find the equity value per share of Nike. What should Kimi Ford recommend regarding an investment in Nike? Please communicate your arguments in a persuasive, cogent, and jargon-free manner. Constructive use of tables and graphs is encouraged. Please do not structure your case report to merely answer each individual question. Rather, your report should tell a “story” based on the questions provided.
