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ACCT-UB 3 Module 12, Homework Assignment The purpose of this assignment is to reinforce your ability to use the principles of Cost of Capital and Valuation. You will have a single opportunity to submit a single file (please submit a word or excel formatted file) with your answers to questions 1 and 2 below. Before submitting your file make sure it is titled: [your last name] M12 HW. In your responses, show all your work (calculation steps) to get partial credit if warranted. Required: 1. The following financial statement data pertains to Halsey, Inc.: Total Assets Interest-Bearing Debt Average borrowing cost Common Equity: Book Value Market Value Marginal Income Tax Rate Market Equity Beta Expected Market Premium Risk-free interest rate $195,245 $85,680 11.25% $42,154 $135,849 37% 0.9 7.5% 4.7% Required: a. Calculate the company's cost of equity capital. b. Calculate the weight on debt capital that should be used to determine Halsey's weighted-average cost of capital. c. Calculate the weight on equity capital that should be used to determine Halsey's weightedaverage cost of capital. d. Calculate Halsey's weighted-average cost of capital. See question 2 on next page 2. Use the information below, along with the cash flow data, to compute the value per share of NIKE. 1. NIKE has 692,000,000 shares of common stock outstanding. 2. Assume that NIKE's cost of equity capital is 10%. Required: a. Determine the value per share of NIKE assuming that NIKE will have no future growth and that 90% of all dividends go to common stockholders. b. Determine the value per share of NIKE assuming that NIKE has a constant growth rate and that the growth rate can be determined by computing the growth of cash provided by operations in the current period presented. Consolidated Statements of Cash Flows Year Ended May 31, 2014 (In millions) 2013 2012 Cash provided by operations: Net income $ 2,693 $ 2,472 $ 2,211 Income charges (credits) not affecting cash: Depreciation 518 438 373 Deferred income taxes (11) 20 (59) Stock-based compensation (Note 11) 177 174 130 Amortization and other 114 66 23 (124) Net gain on divestitures Changes in certain working capital components and other assets and liabilities: (Increase) decrease in accounts receivable (298) 142 (323) (Increase) in inventories (505) (219) (815) (Increase) in prepaid expenses and other current assets (210) (28) (141) Increase in accounts payable, accrued liabilities and income taxes payable 525 27 425 3,003 2,968 1,824 Purchases of short-term investments (5,386) (4,133) (3,245) Maturities of short-term investments 3,932 1,663 2,663 Sales of short-term investments 1,126 1,330 1,721 Cash provided by operations Cash (used) provided by investing activities: Additions to property, plant and equipment Disposals of property, plant and equipment Proceeds from divestitures (880) (598) (563) 3 14 2 786 Increase in other assets, net of other liabilities (2) (2) (14) Settlement of net investment hedges 22 Cash (used) provided by investing activities (1,207) (940) 586 Question 2 continued on next page continued Consolidated Statements of Cash Flows Year Ended May 31, 2014 (In millions) 2013 2012 Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion 986 (60) (49) (203 Increase (decrease) in notes payable 75 10 (47 Payments on capital lease obligations (17) Proceeds from exercise of stock options and other stock issuances 383 313 468 Excess tax benefits from share-based payment arrangements 132 72 115 Repurchase of common stock Dividends common and preferred Cash used by financing activities Effect of exchange rate changes (1,674) (1,814 (799) (703) (619 (2,914) (1,045) (2,100 1 Net (decrease) increase in cash and equivalents (1,117) Cash and equivalents, beginning of year CASH AND EQUIVALENTS, END OF YEAR (2,628) 3,337 $ 2,220 100 67 1,083 377 2,254 $ 3,337 1,877 $ 2,254