Nike Cost of Capital Case

Nike Co., Ltd. Capital cost Kimi Ford, portfolio manager of the mutual fund management company NorthPoint Group on July 5, 2001, investigated Nike, Inc., an analyst's sneaker maker. Report it. Nike's stock price fell sharply from the beginning of the year. Ford is considering buying stocks for funds that he manages and North Point's large cap funds mainly invest in Fortune 500 companies and focus on value investment. Its largest shares include Exxon Mobil, General Motors, McDonald's, 3M and other large stocks, usually old stocks.

Nike's current stock price is $ 42.09 and its rating is too high. The Nike discount rate is less than 4%. Joanna Cohen has to estimate Nike's cost of capital to develop clear guidelines to clarify its strategy. The problem is that Joanna Cohen accidentally uses past information to calculate borrowing costs. It is necessary to recalculate the debt cost and determine the WACC based on the calculation. To measure debt costs, we have to look at market returns. Capital cost is the link between the company's long-term investment decision and the owner's assets determined by market investors. "Magic number" used to determine whether the proposed investment will increase or decrease the company's stock price. Formal capital cost is the rate of return that a company must acquire in the investing project. That stock price

Another way to estimate the cost of capital is a dividend valuation model that uses dividends for company valuation. Nike's dividend payment history is long, so another model, the dividend market capitalization model, should also be used to determine the Nike's ownership cost. Certainly, this model has complexities such as a large forecast period, but Nike's growth opportunities are expected to increase sales and revenue even if there are some flaws.

Debt is financial technology and Nike is a remarkable example of its useful application. For years, the conservative Oregon State Bank refused to offer Nike the interest rate that matched its potential needs; it became "too fast" which made these bankers uncomfortable It was. As the BOJ's risk tolerance increases, its capital allows Nike to evolve to meet customer needs, and banks (and the new Nike's new boss) are doing well. Venture capital is another example of financial technology that enables new business but high risk. Fortunately for venture capitalists (and successful venture capital entrepreneurs), the venture capital portfolio's revenues traditionally followed the laws that would enable such risk-taking.