In this Weekly Assignment, you are asked to apply the residual income valuation (RIV) model to calculate the intrinsic price of Nike. On Canvas you can find the annual report by Nike for year-end May 31, 2015. In pages 107- 11 you can find the consolidated financial statements for 2014 and 2015. In addition, you are provided the following information and assumptions:

? Nike's cost of equity capital is 10%.

? As at May 31, 2015, Nike had 855,351,589 common shares outstanding.

? The share price Nike as at May 31, 2015 was $50.94.

? From 2016 to 2020, Nike's earning per share is expected to grow at 6% on average per annum.

? The Net Dividend Payout ratio (i.e. net dividend paid to shareholders relative to income earned), is projected to be at 0.3 per annum on average from 2016 onwards.

? Assume 1% terminal growth in abnormal earnings.

Required: You are required to develop an Excel spreadsheet, similar to those provided in Week 4 reading material that would:

1) Calculate the intrinsic equity price of Nike as at year-end 2015 using the residual income valuation (RIV) model and the information provided above.

2) Calculate by hand the implied growth of abnormal earnings for Nike as at 2010, assuming that all other assumptions are correct. Note that this calculation must be done by hand and show the manual calculation steps in the Word report. Then, , explain how you can use this knowledge of the implied growth rate for investment decision-making.

3) Using the Goal Seek tool in Excel to calculate the implied expected rate of return, assuming that all other input including the 1% growth in abnormal earnings are correct. Report this calculation in the Word report. Then, in no more than 100 words, explain how you can use this knowledge of the implied expected rate of return for investment decision-making.

4) describe the appropriateness and the limitations of the RIV model and the assumptions employed in this valuation exercise, specifically within the context of Nike Ltd. We will not accept generic arguments. Provide arguments that are specifically relevant to Nike Ltd. You are required to submit an Excel spreadsheet that will contain the answer to the valuation exercise 1), plus a Word report with the answers to the exercises 2), 3) and 4).

The required annual report of NIKE in 2015 can be obtained through this link:https://www.sec.gov/Archives/edgar/data/320187/000032018715000113ke-5312015x10k.htm

??

PART II NIKE, Inc. Consolidated Statements of Income Year Ended May 31, (in millions, except per share data) 2015 2014 2013 Income from continuing operations: Revenues 30,601 $ 27,799 $ 25,313 Cost of sales 16,534 15,353 14.279 Gross profit 14,067 12,446 11,034 Demand creation expense 3,213 3,031 2,745 Operating overhead expense 6,679 5,735 5.051 Total selling and administrative expense 9,892 8,766 7,796 Interest expense (income), net (Notes 6, 7 and 8) 28 33 (3) Other (income) expense, net (Note 17) (58) 103 (15) Income before income taxes 4.205 3,544 3.256 Income tax expense (Note 9) 932 851 805 NET INCOME FROM CONTINUING OPERATIONS 3,273 2,693 2,451 NET INCOME FROM DISCONTINUED OPERATIONS 21 NET INCOME S 3,273 $ 2,693 $ 2,472 Earnings per common share from continuing operations: Basic (Notes 1 and 12) 3.80 $ 3.05 $ 2.74 Diluted (Notes 1 and 12) 3.70 $ 2.97 $ 2.68 Earnings per common share from discontinued operations: Basic (Notes 1 and 12) $ 0.02 Diluted (Notes 1 and 12) $ 0.02 Dividends declared per common share 1.08 0.93 $ 0.81 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.PART II NIKE, Inc. Consolidated Statements of Comprehensive Income Year Ended May 31, (in millions) 2015 2014 2013 Net income $ 3,273 $ 2,693 $ 2.472 Other comprehensive income (loss), net of tax: Change in net foreign currency translation adjustment (20) (32) 38 Change in net gains (losses) on cash flow hedges 2 1,188 (161) 12 Change in net gains (losses) on other 3 (7) (8) Change in release of cumulative translation loss related to Umbrols 83 Total other comprehensive income (loss), net of tax 1,161 (189) 125 TOTAL COMPREHENSIVE INCOME 4,434 $ 2,504 S 2,597 (1) Net of tax benefit (expense) of 50 million, $0 million and $(13) million, respectively. (2) Net of tax benefit (expense) of $(31) milion, $18 million and $(22) milion, respectively. Net of tax benefit (expense) of $0 million, $0 milion and $1 million, respectively. (4) Net of tax benefit (expense) of $0 milion, $0 million and $47 milion, respectively. The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.PART II NIKE, Inc. Consolidated Balance Sheets May 31, (in millions) 2015 2014 ASSETS Current assets: Cash and equivalents (Note 6) 3,852 $ 2,220 Short-term investments (Note 6) 2,072 2,922 Accounts receivable, net (Note 1) 3,358 3,434 Inventories (Notes 1 and 2) 4.337 3,947 Deferred income taxes (Note 9) 389 355 Prepaid expenses and other current assets (Notes 6 and 17) 1.968 818 Total current assets 15.976 13,696 Property, plant and equipment, net (Note 3) 3,011 2,834 Identifiable intangible assets, net (Note 4) 281 282 Goodwill (Note 4) 131 131 Deferred income taxes and other assets (Notes 6, 9 and 17) 2.201 .651 TOTAL ASSETS S 21,600 S 18,594 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 8) 107 $ Notes payable (Note 7) 74 167 Accounts payable (Note 7) 2,131 1,930 Accrued liabilities (Notes 5, 6 and 17) 3,951 2.491 Income taxes payable (Note 9) 71 432 Total current liabilities 6,334 5,027 Long-term debt (Note 8) 1,079 1,199 Deferred income taxes and other liabilities (Notes 6, 9, 13 and 17) 1,480 1,544 Commitments and contingencies (Note 16) Redeemable preferred stock (Note 10) Shareholders' equity: Common stock at stated value (Note 11): Class A convertible - 178 and 178 shares outstanding Class B - 679 and 692 shares outstanding 3 3 Capital in excess of stated value 6,773 5.865 Accumulated other comprehensive income (Note 14) 1,246 85 Retained earnings 4,685 4,871 Total shareholders' equity 12,707 10.824 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY S 21,600 S 18,594 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.NIKE, Inc. Consolidated Statements of Cash Flows Year Ended May 31, (in millions) 2015 2014 2013 Cash provided by operations: Net income $ 3,273 $ 2,693 $ 2,472 Income charges (credits) not affecting cash: Depreciation 606 518 438 Deferred income taxes (113) (11 ) 20 Stock-based compensation (Note 11) 191 177 174 Amortization and other 43 68 64 Net foreign currency adjustments 424 56 66 Net gain on divestitures (124) Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable (216) (298) 142 (Increase) in inventories (621) (505) (219) (Increase) in prepaid expenses and other current assets (144) 210 (28) Increase in accounts payable, accrued liabilities and income taxes payable 1237 525 27 Cash provided by operations 4,680 3,013 3,032 Cash used by investing activities: Purchases of short-term investments (4,936 (5,386) (4,133) Maturities of short-term investments 3,655 3,932 1,663 Sales of short-term investments 2,216 1,126 1.330 Investments in reverse repurchase agreements (150) Additions to property, plant and equipment (963) (880) (598) Disposals of property, plant and equipment 3 3 14 Proceeds from divestitures 786 [Increase) in other assets, net of other liabilities (2) (2) Cash used by investing activities (175) (1,207) (940) Cash used by financing activities: Net proceeds from long-term debt issuance 986 Long-term debt payments, including current portion (7) (60) (49) (Decrease) increase in notes payable (63) 75 10 Payments on capital lease obligations (19) (17) Proceeds from exercise of stock options and other stock issuances 514 383 313 Excess tax benefits from share-based payment arrangements 218 132 72 Repurchase of common stock (2,534) (2.628) (1,674) Dividends - common and preferred (899) (799) (703) Cash used by financing activities 2,790) (2,914) (1,045) Effect of exchange rate changes on cash and equivalents (83 19 36 Net increase (decrease) in cash and equivalents 1,632 (1,117) 1.083 Cash and equivalents, beginning of year 2,220 3,337 2,254 CASH AND EQUIVALENTS, END OF YEAR $ 3,852 $ 2,220 $ 3,337 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest, net of capitalized interest $ 53 $ 53 $ 20 Income taxes 1,262 856 702 Non-cash additions to property, plant and equipment 206 167 137 Dividends declared and not paid 240 209 188 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement.PART II NIKE, Inc. Consolidated Statements of Shareholders' Equity Common Stock Capital in Accumulated Class A Class B Excess Other of Stated Comprehensive Retained (in milions, except per share data) Shares Amount Shares Amount Value Income Earnings Total Balance at May 31, 2012 180 $ 736 3 $ 4,641 $ 149 $ 5,526 $ 10,319 Stock options exercised 10 322 322 Conversion to Class B Common Stock (2) 2 Repurchase of Class B Common Stock (34) (10) (1,647) (1,657) Dividends on common stock ($0.81 per share) (727) (727) Issuance of shares to employees 2 65 65 Stock-based compensation (Note 11) 174 174 Forfeiture of shares from employees (4) (12) Net income 2,472 2.472 Other comprehensive income (loss) 178 $ 716 $ 3 $ 5,184 $ 125 125 Balance at May 31, 2013 - 274 $ 5,620 $ 11,081 Stock options exercised 11 445 445 Repurchase of Class B Common Stock (37) (11) (2,617) (2.628 Dividends on common stock ($0.93 per share) (821) (821 Issuance of shares to employees 2 78 78 Stock-based compensation (Note 11) 177 177 Forfeiture of shares from employees (8) (4) (12) Net income 2,693 2.693 Other comprehensive income (loss) (189) 1189 Balance at May 31, 2014 178 $ - 692 $ 3 $ 5,865 $ 85 $ 4,871 S 10,824 FORM 10-K Stock options exercised 14 639 639 Repurchase of Class B Common Stock (29) (9) (2,525) 2,534) Dividends on common stock ($1.08 per share) (931) 1931 Issuance of shares to employees 2 92 92 Stock-based compensation (Note 11) 191 191 Forfeiture of shares from employees (5) (3) (8) Net income 3,273 3,273 Other comprehensive income (loss) 1,161 1,161 Balance at May 31, 2015 178 $ - 679 $ 3 $ 6,773 $ 1,246 $ 4,685 $ 12,707 The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement