Nike - Cost of capital

1. What is cost of capital? What does it represent?

2. Why is it important to estimate cost of capital?

3. Is cost of capital set by investors or managers?

4. Evaluate Joanna Cohens estimation of cost of capital: a. Is it appropriate to use a single cost of capital for all Nikes businesses? Explain. b. How does Joanna Cohen calculate the weights for debt and equity? Do you agree with these calculations? Why? (If you do not agree, show your calculations) c. How does she calculate cost of debt? Do you agree with these calculations? Why? (If you do not agree, show your calculations) d. How does she calculate cost of equity? Do you agree with these calculations? Why? (If you do not agree, show your calculations)

5. Calculate cost of equity using Dividend Discount Model. Is it appropriate to use this model for Nike? Explain.

6. What is your estimate for Nikes cost of capital (i.e., calculate WACC)? Do you recommend an investment in Nike stock? Why?