Establishing the cost of equity is the most arbitrary and difficult part of developing a firm's cost of capital. Outline the reasons behind this problem and the approaches available to make the best of it"

Now, calculate an approximate WACC for NIKE and Under Armour.

- First, you will need to calculate your chosen companies capital weights. You can do this by calculating the percentage of each by the amounts shown on their respective balance sheets.

- Assume that the before-tax cost of debt for the corporations is 5%.

- Calculate the companies effective tax rates by dividing their income tax expense by their before tax income.

- Per Yahoo Finance (or Reuter's,etc.), find the beta of your company and its major competitor.

- Assume, that currently the risk-free rate is 2.0% and the market return is 8%. What is the expected return on equity of each of the two companies stocks?

- Use the amounts (capital weights, return on debt and return on equity) calculated above in your WACC calculation

- ** (Since preferred stock constitutes very little of the capital structure, for this exercise ,disregard preferred stock percentages).

- What would your calculated WACC's imply for the firms capital budgeting projects ?

http://www.nasdaq.com/symbol/nke/financials?query=balance-sheet

http://www.nasdaq.com/symbol/ua/financials?query=balance-sheet