Examine Nike’s financial statements and notes 1 and 3 to those statements in Appendix C.

1. What method of depreciation does Nike use in reporting to shareholders? Do you think it uses the same method for tax purposes? If not, what method do you suppose they use for tax reporting? Why?

2. What is the original cost of the machinery and equipment currently used by Nike? If Nike generally invests about $400 million per year in machinery and equipment, what is the average useful life of its machinery and equipment?

3. Nike’s Statement of Cash Flows shows that the company invested $432 million in property, plant, and equipment during fiscal 2011. Assume that these assets have a useful life of 5 years and that Nike requires a 14% pretax rate of return. Compute the minimum average annual pretax net cash inflow that would justify this investment.

4. Using the $432 million of investment and the net cash flow you computed in requirement 3 (and assuming zero residual value), determine the investment’s a) payback period and b) accounting rate of return on average investment.