Question
Consider the following data for Nike Inc.: In 2009 it had $19,150 million in sales with a 10% growth rate in 2010, but then slows
Consider the following data for Nike Inc.: In 2009 it had $19,150 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-run growth rate of 5% by 2015. Nike expects EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increases in sales, and capital expenditures to equal depreciation expenses. Nike also has $2,300
million in cash, $3232 million in debt, 486486 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10%.
a. Suppose you believe Nike's initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts?
The range of prices will be:
Highest price share: $ ___________(Round to the nearest cent.)
Lowest price share:$____________ (Round to the nearest cent.)
b. Suppose you believe Nike's initial revenue EBIT margin will be between 9% and 11%
of sales. What range of prices for Nike stock is consistent with these forecasts?
The range of prices will be:
Highest price per share: $_________ (Round to the nearest cent.)'
Lowest price per share:$__________ (Round to the nearest cent.)
c. Suppose you believe Nike's weighted average cost of capital is between
9.5% and 12%.
What range of prices for Nike stock is consistent with these forecasts?
The range of prices will be:
Highest price per share: $___________(Round to the nearest cent.)
Lowest price per share:$___________ (Round to the nearest cent.)
d.Compute the stock prices when the initial revenue growth begins at 7%, the EBIT is 9% of sales, and the WACC is 12%.Then compute the stock price when the initial revenue growth begins at 11%, the EBIT is 11% of sales, and thecompany's WACC is 9.5%.
What is the range of prices under these scenarios?
The range of prices will be:
Highest price per share:$____________(Round to the nearest cent.)
Lowest price per share:$_____________(Round to the nearest cent.)
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