Jenny Lightfeather is an Equity Research analyst at Stanley Morgan LLC. She has deep industry knowledge and experience in the sports apparel industry. She is currently researching Nike Inc. and trying to advise Stanley Morgan's clients whether they should Buy, Sell or Hold Nike's stock. She has analyzed Nike's financial statements, interviewed management, talked with retailers, talked with suppliers and studied Nike's new product releases over the next 12 months. This has allowed her to build a valuation model for what she thinks their stock should trade for over the coming year. Jenny has estimated a Year-end target price of $98/Share and that they will pay an annual dividend of $2.50/Share (you can assume that this dividend is paid at the end of the year). The Stock currently trades for $88/Share. Jenny's Research Universe also includes a limited number of sports apparel brands. The Betas for these companies are in the table below: Nike 1.21 Adidas AG 0.61 Under Armor Lululemon 1.09 1.27 Beta Additional Information she has compiled is: Nike Total Shares outstanding = 1.566 Billion Nike Debt Outstanding = $3.46 Billion Yield on 10 Year Treasury Bond = 1.6% Weighted Avg. Cost of Debt = 4.7% Market (S&P500) Risk Premium = 8.2% 1. What is the Market Capitalization of Nike? 2. What is Nike's expected Dividend Yield (using Jenny's dividend forecast)? 3. Calculate what Jenny believes Nike's expected return will be for the coming year. 4. According to CAPM, what is the expected return on Nike, and the expected return of the apparel industry as defined by an equally weighted 4 stock portfolio of Jenny's Investment Universe? 5. Jenny wishes to summarize the industry returns by showing them on the Security Market Line and also where she thinks Nike's return is. Construct the SML and clearly indicate: The Risk-Free Security return b. The overall Stock Market's return C. The slope of the Security Market Line d. The apparel industry's return according to CAPM e. Nike's return according to CAPM, and f. Jenny's best estimate of what Nike's return will be 6. What should Jenny's Headline be on her Nike Report - Buy, Sell or Hold, and why? a. Note CAPM: Re = R + B(Rm-Rt) Dividend Yield Dividend Price Jenny Lightfeather is an Equity Research analyst at Stanley Morgan LLC. She has deep industry knowledge and experience in the sports apparel industry. She is currently researching Nike Inc. and trying to advise Stanley Morgan's clients whether they should Buy, Sell or Hold Nike's stock. She has analyzed Nike's financial statements, interviewed management, talked with retailers, talked with suppliers and studied Nike's new product releases over the next 12 months. This has allowed her to build a valuation model for what she thinks their stock should trade for over the coming year. Jenny has estimated a Year-end target price of $98/Share and that they will pay an annual dividend of $2.50/Share (you can assume that this dividend is paid at the end of the year). The Stock currently trades for $88/Share. Jenny's Research Universe also includes a limited number of sports apparel brands. The Betas for these companies are in the table below: Nike 1.21 Adidas AG 0.61 Under Armor Lululemon 1.09 1.27 Beta Additional Information she has compiled is: Nike Total Shares outstanding = 1.566 Billion Nike Debt Outstanding = $3.46 Billion Yield on 10 Year Treasury Bond = 1.6% Weighted Avg. Cost of Debt = 4.7% Market (S&P500) Risk Premium = 8.2% 1. What is the Market Capitalization of Nike? 2. What is Nike's expected Dividend Yield (using Jenny's dividend forecast)? 3. Calculate what Jenny believes Nike's expected return will be for the coming year. 4. According to CAPM, what is the expected return on Nike, and the expected return of the apparel industry as defined by an equally weighted 4 stock portfolio of Jenny's Investment Universe? 5. Jenny wishes to summarize the industry returns by showing them on the Security Market Line and also where she thinks Nike's return is. Construct the SML and clearly indicate: The Risk-Free Security return b. The overall Stock Market's return C. The slope of the Security Market Line d. The apparel industry's return according to CAPM e. Nike's return according to CAPM, and f. Jenny's best estimate of what Nike's return will be 6. What should Jenny's Headline be on her Nike Report - Buy, Sell or Hold, and why? a. Note CAPM: Re = R + B(Rm-Rt) Dividend Yield Dividend Price