Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider the following data for Nike Inc.: In 2018, it had $37,000.00 million in sales with a 15% growth rate in 2019, but then
Consider the following data for Nike Inc.: In 2018, it had $37,000.00 million in sales with a 15% growth rate in 2019, but then slows by 2% to the long-run growth rate of 5% by 2024. Nike expects EBIT to be 13% of sales, increases in net working capital requirements to be 5% of any increases in sales, and capital expenditures to equal depreciation expenses. Nike also has $525 million in cash, $38 million in debt, 1,626 million shares outstanding, a tax rate of 25%, and a weighted average cost of capital of 9%. a. Suppose you believe Nike's initial revenue growth rate will be between 10% and 20% (with growth slowing linearly to 5% by year 2024). What range of prices for Nike stock is consistent with these forecasts? b. Suppose you believe Nike's initial revenue EBIT margin will be between 12% and 14% of sales. What range of prices for Nike stock is consistent with these forecasts? c. Suppose you believe Nike's weighted average cost of capital is between 8.5% and 11%. What range of prices for Nike stock is consistent with these forecasts? d. What range of stock prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started