Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider the following data for Nike Inc.: In 2018, it had $38,000.00 million in sales with a 15% growth rate in 2019, but then slows

image text in transcribed

Consider the following data for Nike Inc.: In 2018, it had $38,000.00 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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Mathematical Finance Core Theory Problems And Statistical Algorithms

Authors: Nikolai Dokuchaev

1st Edition

0415414482, 978-0415414487

More Books

Students also viewed these Finance questions