Question
Consider the following data for Nike. Nike had sales of comma $25,300 million in 2012. Nike expects its sales to grow at a rate of
Consider the following data for Nike. Nike had sales of comma $25,300 million in 2012. Nike expects its sales to grow at a rate of 10% in 2013 but then slow by 1% to the long-run growth rate that is characteristic of the apparel industry, 5%, by 2018. Based on Nike's past profitability and investment needs, you expect 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 $3.3 billion in cash, $1.2 billion in debt, 893.6 million shares outstanding, a tax rate of 24%, and a WACC 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 2018). 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 9% and 11% of sales. What range of prices for Nike stock is consistent with these forecasts? c. Suppose you believe Nike's WACC is between 9.5% and 12%. 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? a. Suppose you believe Nike's initial revenue growth rate will be between 7 % and 11 %(with growth slowing linearly to 5% by year 2018). What range of prices for Nike stock is consistent with these forecasts? Highest price share: $nothing Lowest price share: $nothing (Round to the nearest cent.)
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