1. What is the WACC and why is it important to estimate a firm's cost of capital? Is the WACC set by investors or by managers? Explain. Did Cohen make any mistakes in her analysis? Explain.

2. Calculate the costs of equity using CAPM, the dividend growth model, and the earnings capitalization ratio (Note: The formula for the earnings capitalization ratio is Re = EPS1/P, where EPS1 is the estimated EPS for next year, and P is the current stock price). Show your calculations, and identify and justify the sources for your data. Explain the advantages and disadvantages of each method?

3. What is your estimate of the WACC? (Show your calculations on an Excel Spreadsheet.) Identify the sources of data used. Justify your assumptions. Note that the price of the bond in Exhibit 4 is listed as $95.60 but it is really 95.6% of par.

4. Based on your estimate of the WACC, what is your estimate of the value of a share of Nike stock? (Show your calculations on an Excel spreadsheet.) What should Kimi Ford recommend regarding an investment in Nike? Why?