Fadila Pratika 4S Alimuddin - Herman Hutagalung - 293) Jenjang § - 29318434 mnsia Anindita Dwiputri ~ 29316380 Monika Satmaka - 2031838) Rifgi A Haqim - 29318446 ‘Vinny - 29318432 Wenny Zoro - 295 Wiwit Hermawan - 293 Lau> Nike's (NYSE: NKE) share price had deciined significantly from the start of the year 2001 Kimi Ford, a portfolio manager at NorthPoint Group, is weighing whether to buy Nike's shares > Nike revealed their plan to boost their revenue by developing more mid-priced athletic shoes and pushing their apparel line. They would also give extra effort to cut their expenses: > Analyst reactions were mixed. Some saw significant growth opportunities in apparel and Nike's intemational businesses, while some thought the financial target to be too aggressive > Kimi Ford has done cash-flow forecast and asked her new assistant, Joanna Cohen, to estimate Nike's COC1. Nike's revenue had plateaued at around $9 billion, while net income had fallen from almost $800 million to $580 million 2. Nike's market share in US athletic shoes had fallen from 48% in 1997 to 42% in 2000. 1, Single or Multiple Cost of Capital 2. Methodology fer Calculating the Cost of Capital 3. Cost of Debt 4. Cost of Equity1. Single oF Multiple Cost of Capital w — Single cost of capital is seen a5 a more proper application towards Nike a5 compared ta multiple cost of capital due to similar risks profiles within Nike's businoss segmentation 2. Methodology for Calculating the Cost of Capital The reason of calculating WACC is to estimate Nike's value by applying WACC as the discount rate in projecting the cash flow. W — WACC itself is the average of the costs of equity and debt, and gives each one the appropriate weighting, By using a weighted average cost of capita, it allows the firm to calculate the exact cost of financing any project. 3. Cost of Dabt & Cost of Equity ¥ The WACC is used for diseounting cash flows in the future, thus all components of cost must reflect firm's concurrent or future abilities in raising capital 7 Cohen mistakenly uses the historical data in estimating the cost of debt. She applied the average historical balance of debt instead of applying the latest cost of debt as shown in Exhibit 4. It may not reflect Nike's current or future cost of debt Cohen also applied historical data in estimating beta for cast of equity calculation. This should Rot occur in calculating cost of equity, in which the latest beta should be applied to reflect Nike's latest risk conditian.KH icon ermems With claitn of the company af CoC Equity per share was $37.24, while share price on stock market was $42.09 - which is overvalued, nl out wrth discount eate of 11.17%, value per share will be exactly at $42.09, 1 2. Joana 3, Meaning that the company is over-claiming the COC atBy using 20 years assumptio 1 WACCis in stock market Joana found out : 108,30 for $69.41 of value per share, which is actually much higher than share price This nigans a gre light for the company to acquire the shares, which was wandervalicd by 60% ($42.09/569.41)con Some correction for Joanna caleutat 1 Using 10 y 2 Th om, due to over 5.25 based of calculation share gained is 8 means that current sha yathy duration af 20 y correction on (with 28, whieh is stl stil i e prices is undervalue by $3% jest to date to 0.49, her than et value at $42,00/share. Thiscoo With Damodaran concept, and 10 years bond rate as assumption: |. Still the equity per share is much higher than market valuc ($64.61 out of $42,09), Market valu underva 2 Groen for the company to acquite the shares in stock market> The financial analysis showed that Nike shares was undervalued and acquisition of shares could make a good return of investment of North Point Group. > By considering estimated WACC, Equity Per Share, potential long-term revenue growth, and potential earnings growth, it is recommended for North Paint Group to acquire Nike shares.