Once again, your team is the key financial management team for your company. The company?s CEO is now looking to expand its operations by investing in new property, plant, and equipment. Your team recently calculated the WACC for your company, which will now be useful in evaluating the project?s effectiveness. You are now asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.

The parameters for this project are:

Your team will be using the same company for this project that you used in the Week 6 project. The company is now looking to expand its operations and wants you to do some analysis using key capital budgeting tools to do this. The parameters for this project are as follows.

The firm is looking to expand its operations by 10% of the firm?s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm?s balance sheet.)

The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment?s cost.

The annual EBIT for this new project will be 18% of the project?s cost.

The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use the same marginal tax rate that you used in the Week 6 project.

The hurdle rate for this project will be the WACC that you calculated in Week 6.

Deliverable for this Project

Prepare a narrated PowerPoint presentation using VoiceThread or Webex that will highlight the following items.

• Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
• Your calculations that convert the project?s EBIT to free cash flow for the 12 years of the project.
• The following capital budgeting results for the project
  • Net present value
  • Internal rate of return
  • Discounted payback period.
• Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project.

The company Nike. I have attached the project requirements and my existing PowerPoint project.

Weighted Average Cost of Capital By: Sharaye Baugh Income Statement Nike's Revenue Revenue 5/31/2016 5/31/2015 5/31/2014 Total Revenue 32,376,000 30,601,000 27,799,000 Cost of Revenue 17,405,000 14,971,000 16,534,000 14,067,000 15,353,000 12,446,000 - - - 10,469,000 - 9,892,000 - 8,766,000 - - - - 4,502,000 4,175,000 3,680,000 140,000 58,000 -103,000 4,623,000 4,205,000 3,544,000 - - - 4,623,000 4,205,000 3,544,000 863,000 932,000 851,000 3,760,000 3,273,000 2,693,000 Discontinued Operations - - - Extraordinary Items - - - Gross Profit Research Development Selling General and Administrative Operating Expenses Non Recurring Others Total Operating Expenses Operating Income or Loss Total Other Income/Expenses Net Earnings Before Interest and Taxes Interest Expense Income from Continuing Income Before Tax Operations Income Tax Expense Minority Interest Net Income From Continuing Ops Non-recurring Events Effect Of Accounting Changes Other Items Net Income - - - Net Income Preferred Stock And Other Adjustments 3,760,000 - 3,273,000 - 2,693,000 - Net Income Applicable To Common Shares 3,760,000 3,273,000 2,693,000 Balance Sheet Period Ending Current Assets Current Liabilities Stockholders' Equity Cash And Cash Equivalents Short Term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long Term Investments Property Plant and Equipment Goodwill Intangible Assets Accumulated Amortization Other Assets Deferred Long Term Asset Charges Total Assets Accounts Payable Short/Current Long Term Debt Other Current Liabilities Total Current Liabilities Long Term Debt Other Liabilities Deferred Long Term Liability Charges Minority Interest Negative Goodwill Total Liabilities Misc. Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock Retained Earnings Treasury Stock Capital Surplus Other Stockholder Equity Total Stockholder Equity Net Tangible Assets Price of NIKE, Inc. stock 5/31/2016 5/31/2015 5/31/2014 3,138,000 2,319,000 3,241,000 4,838,000 1,489,000 15,025,000 3,520,000 131,000 281,000 2,439,000 21,396,000 5,313,000 45,000 5,358,000 2,010,000 1,770,000 9,138,000 3,000 4,151,000 7,786,000 318,000 12,258,000 11,846,000 3,852,000 2,072,000 3,358,000 4,337,000 1,968,000 15,587,000 3,011,000 131,000 281,000 2,587,000 21,597,000 6,151,000 181,000 6,332,000 1,079,000 1,479,000 8,890,000 3,000 4,685,000 6,773,000 1,246,000 12,707,000 12,295,000 2,220,000 2,922,000 3,789,000 3,947,000 818,000 13,696,000 2,834,000 131,000 282,000 1,651,000 18,594,000 4,853,000 174,000 5,027,000 1,199,000 1,544,000 7,770,000 3,000 4,871,000 5,865,000 85,000 10,824,000 10,411,000 $55.22 $101.76 $76.91 Cost of Debt Outstanding Bonds detail of Nike (as of 10/19/2016) Bond Symbol Amount Outstanding Last trade Amount on the basis of market value YTM Proportion in total Debt NKE3998567 500,000 98.36 491800 2.536% 14.72% NKE3998568 500,000 94.55 472750 3.961% 14.15% NKE4305328 1,000,000 98.31 983100 3.974% 29.43% NKE4416434 500,000 90.01 450050 3.949% 13.47% NKE4416427 1,000,000 94.26 942600 3.062% 28.22% 3,500,000 3,340,300 100.00% Average YTM of NIKE, Inc. 3.50% Marginal Tax rate 35.00% After Tax cost of debt of NIKE, Inc. 2.27% Cost of Equity Rf = Risk free rate = Beta = Market Return = 2.38% (10 Year US Treasury Bonds) 0.43 4.41% (Average return of S&P 500 for the last 2 Years) Cost of equity= 3.25% CAPM is ri= rf+ i (RMkt - rf) =2.38%+0.43(4.41%-2.38%) =2.38%+0.87% =3.25% Calculation of WACC Proportion Market Capitalization of Equity of NIKE, Inc. 91.51billion 96.48% Market Value of Debt 3.34billion 3.52% Total 94.85billion 100.00% WACC = 3.22% WACC is rWACC = E (E+D) rE + D (E+D) rD(1-TC) = 3.34 (3.34+91.51) 3.25% + 91.51 (3.34 +91.51 )3.5% (1-0.027) = 3.22% References http://finra-markets.morningstar.com/BondCenter/ http://finance.yahoo.com/ http://investors.nike.com/ money.cnn.com FIN515: Week 7 Project - Capital Budgeting Analysis Once again, your team is the key financial management team for your company. The company's CEO is now looking to expand its operations by investing in new property, plant, and equipment. Your team recently calculated the WACC for your company, which will now be useful in evaluating the project's effectiveness. You are now asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets. The parameters for this project are: Your team will be using the same company for this project that you used in the Week 6 project. The company is now looking to expand its operations and wants you to do some analysis using key capital budgeting tools to do this. The parameters for this project are as follows. The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm's balance sheet.) The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost. The annual EBIT for this new project will be 18% of the project's cost. The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use the same marginal tax rate that you used in the Week 6 project. The hurdle rate for this project will be the WACC that you calculated in Week 6. Deliverable for this Project Prepare a narrated PowerPoint presentation using VoiceThread or Webex that will highlight the following items. Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project Your calculations that convert the project's EBIT to free cash flow for the 12 years of the project. The following capital budgeting results for the project o Net present value o Internal rate of return o Discounted payback period. Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project. 1 FIN515: Week 7 Project - Capital Budgeting Analysis Grading Rubric Possible Points Calculation of Cost of Project Estimation of Cash Flows Capital Budgeting Analysis Form Criteria and Point Range 0-3 8 12 12 8 4-6 7-9 10-12 All calculations are incorrect, or not presented. Calculation of PP&E, salvage value, or annual depreciation is incorrect. Cost of PP&E is mostly correct with some minor calculation errors. 0-3 All aspects of the cash flow calculation are incorrect, or not presented. 4-6 Significant, but identifiable errors are presented in the calculation to convert income to cash flows.. 0-2 All of the capital budgeting calculations are incorrect, or not presented. 3-4 Two errors noted in the NPV, IRR, and Discounted Payback Period calculations. 7-9 Cash flows are properly converted from accrual-based net income to cash flows from the project, with minor errors. 5-6 One error noted in the NPV, IRR and Discounted payback period calculations. Cost of Property, plant and Equipment and annual depreciation correctly calculated. 10-12 Cash flows are properly converted from accrual-based net income to cash flows from the project. 0-2 Poor writing and presentation skills, or no presentation provided. 3-4 Several problems noted in regard to writing and presentation skills. 5-6 Writing and presentation done well with a few minor errors 2 7-8 All of the NPV, IRR, and Discounted Payback period calculations are correct. 7-8 Virtually no errors in writing or presentation