Frl 440 Nike Inc UPDATE
Nike Inc.
Cost of Captial
Michael Tjandra
Anna
Ellie Du
Background of Nike and North - Point
Nike
North-Point
Revenue $9 Billion from 1997
Mutual Fund Management Firm
Net income fallen from $800
Million to $580 Million
Invests in fortune 500 companies Market Share fallen from 48%
(1997) to 42% (2000)
At end of June 2001, fund’s year to date returns tops at 6.4%
Long term revenue targeted at
8-10%
Funds performed extremely well
Earning growth is targeted at
15%
The stock market in decline for
18 months
Adverse effect of strong dollar had negative effects on revenue
Nike Inc. BackGround
Headquarters : Beaverton Oregon
Founded January 25, 1964
Since 1997
◦ Net income has fallen from $800 million to $580 million ◦ Revenue tops around $9 million
Market shares in U.S athletic shoes down
◦ 48% in 1997
◦ 42% in 2000
Case Background
● NorthPoint Large Cap Fund deciding whether to buy
Nike’s stock.
● Nike experienced sales growth decline.
● Nike has reveal that it would increase exposure in footwear and apparel lines. It also commits to cut down expenses. ● Long term revenue growth target 8%-10%
● Earning growth target 15%
● The market responded mixed signals to Nike’s changes. ● Kimi Ford, portfolio manager for NorthPoint Large
Cap Fund, has done a cash flow estimation.
● Is Nike stock worth investing?
● Ask her assistant, Joanna Cohen to estimate cost of capital
● Lehman Brothers recommended to invest
● UBS Warburg/ CSFB recommended not to invest
What is WACC?
WACC methodology is used to discount future cash flows allowing us to use the information for present decisions that will benefit the company in the future.
WACC is estimated using present and past information, therefore it varies depending on the information being used
WACC set by investors and market
◦ Not by Managers
The estimated WACC sets the least amount of returns that the investor needs in order to either break even or have profits.
Analysis
Considering the
Cost of Captial
Michael Tjandra
Anna
Ellie Du
Background of Nike and North - Point
Nike
North-Point
Revenue $9 Billion from 1997
Mutual Fund Management Firm
Net income fallen from $800
Million to $580 Million
Invests in fortune 500 companies Market Share fallen from 48%
(1997) to 42% (2000)
At end of June 2001, fund’s year to date returns tops at 6.4%
Long term revenue targeted at
8-10%
Funds performed extremely well
Earning growth is targeted at
15%
The stock market in decline for
18 months
Adverse effect of strong dollar had negative effects on revenue
Nike Inc. BackGround
Headquarters : Beaverton Oregon
Founded January 25, 1964
Since 1997
◦ Net income has fallen from $800 million to $580 million ◦ Revenue tops around $9 million
Market shares in U.S athletic shoes down
◦ 48% in 1997
◦ 42% in 2000
Case Background
● NorthPoint Large Cap Fund deciding whether to buy
Nike’s stock.
● Nike experienced sales growth decline.
● Nike has reveal that it would increase exposure in footwear and apparel lines. It also commits to cut down expenses. ● Long term revenue growth target 8%-10%
● Earning growth target 15%
● The market responded mixed signals to Nike’s changes. ● Kimi Ford, portfolio manager for NorthPoint Large
Cap Fund, has done a cash flow estimation.
● Is Nike stock worth investing?
● Ask her assistant, Joanna Cohen to estimate cost of capital
● Lehman Brothers recommended to invest
● UBS Warburg/ CSFB recommended not to invest
What is WACC?
WACC methodology is used to discount future cash flows allowing us to use the information for present decisions that will benefit the company in the future.
WACC is estimated using present and past information, therefore it varies depending on the information being used
WACC set by investors and market
◦ Not by Managers
The estimated WACC sets the least amount of returns that the investor needs in order to either break even or have profits.
Analysis
Considering the