Case Study: Nike: approach of Capital 20 September, 2010 1. Do you agree with Joanna Cohens WACC advisement? Why or why not? Our group did not agree with Joannas WACC calculation. We guess that many of the assumptions that she made were ludicrous and nearwhat altered the lode of the WACC calculation. The first piece that we disagreed with was with Joannas estimation of the impartiality of the company. Joanna on the face of it utilise the Total Shareholders comeliness figure off the balance sheet of Exhibit #2. We tactual sensation that she under orders the impartiality of the company by using this figure. In our calculation, we figure the shares outstanding by the sunrise(prenominal) market price of the stock. Our uprightness figure came out to (271.5 x $42.09) $11,427.4. This is significantly more than Joannas book value go steady of $3,494.5. We entrust that Joanna mistakenly apply the book value of equity rather than the market value of equity in her WACC calculations. This significantly impacts the equity to debt ratio utilise in the WACC calculation. It raises the equity enunciate of total capital from 73% to 90%. We agreed with Joannas debt figure of $1,296.6.
Due to the change in equity, the debit contribution of total capital was bring down from 27% to 10%. Joanna utilise the current yield on the 20-year exchequer bond as her risk of exposure- dispatch consec vagabond. According to scupper #4, this was at 5.74%. We felt that this was in addition aggressive and believe that a more orthodox auspicate was in order. We did some searching on the cyberspace and found that a 90- sidereal day Treasury blame is most a abundant deal used. riskless try: The riskless mark is a theoretical invade rate at which an investment may earn come to without incur any risk. In practice, the risk-free rate is often a short-term Treasury rate (i.e., 90 Day Treasury Bill). We selected the 90-day Treasury bond rate of 3.59% as our risk free rate. This figure was obtained from exhibit #4. This juvenile risk-free...If you want to stick a full essay, order it on our website: Ordercustompaper.com
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