Replication of Exhibit 2 Nike, Inc Discounted Cash Flow Analysis Assumptions 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Revenue growth 7.0% 6.5% 6.5% 6.5% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% COGS/Sales 60.0% 60.0% 59.5% 59.5% 59.0% 59.0% 58.5% 58.5% 58.0% 58.0% S&A/Sales 28.0% 27.50% 27.00% 26.50% 26.00% 25.50% 25.00% 25.00% 25.00% 25.00% Tax rate 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Current assets/Sales 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% Current liabilities/Sales 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% 11.5% Cost of capital (%) 12.0% Source: First approximation by Kimi Ford. Terminal growth rate (%) 3.0% Source: First approximation by Kimi Ford Net Working Capital 2699.3 2690.54924 2865.434941 3051.688212 3250.047946 3445.050822 3651.753872 3870.859104 4103.11065 4349.297289 4610.255126 Revenues 9488.8 10,153.0 10,813.0 11,515.8 12,264.3 13,000.2 13,780.2 14,607.0 15,483.4 16,412.4 17,397.2 Year 0 1 2 3 4 5 6 7 8 9 10 Discounted Cash Flow Operating income 1,218.4 1,351.6 1,554.6 1,717.0 1,950.0 2,135.9 2,410.2 2,554.8 2,790.1 2,957.5 Taxes 463.0 513.6 590.8 652.5 741.0 811.7 915.9 970.8 1,060.2 1,123.9 NOPAT 755.4 838.0 963.9 1,064.5 1,209.0 1,324.3 1,494.3 1,584.0 1,729.9 1,833.7 Capex net of deprec - - - - - - - - - - Change in NWC 8.8 (174.9) (186.3) (198.4) (195.0) (206.7) (219.1) (232.3) (246.2) (261.0) FREE CASH FLOW 764.1 663.1 777.6 866.2 1,014.0 1,117.6 1,275.2 1,351.7 1,483.7 1,572.7 TERMINAL VALUE - - - - - - - - - 17,998.7 Total Cash Flows 764.1 663.1 777.6 866.2 1,014.0 1,117.6 1,275.2 1,351.7 1,483.7 19,571.5 Present Value of Cash Flows 682.3 528.6 553.5 550.5 575.4 566.2 576.8 545.9 535.0 6,301.5 same as equals: Source: CALCULATE sum of the present value of the cash flows = Enterprise Value Enterprise Value OR: CALCULATE using NPV function Less: outstanding debt 1,296.6 Source: Exhibit 3 (sum of current portion of LTD, notes payable, and LTD) Equals: Equity Value Source: CALCULATE: Enterprise value less outstanding debt Current shares outstanding 271.5 Source: Exhibit 2 Equity value per share Source: CALCULATE: Equity value divided by Current Shares Outstanding Current market price $42.09 Source: Exhibit 2 Cost of Capital Nper = 20 years x 2 pmts per year Cost of Debt PMT = $6.75 divided by 2 pmts per year YTM on Nike bonds (Ex 4) 7.17% Source: Exhibit 4 Yield is based on RATE function ======> PV = $95.60 current market price Tax rate 36.00% Source: Exhibit 1 FV = $100.00 par value After-tax cost of debt Source: CALCULATE: YTM times (1 - tax rate) Cost of Equity (CAPM) Risk-free rate = Rf 5.74% Source: Exhibit 4, 20 year T-bonds Market Premium = Rm - Rf 5.90% Source: Exhibit 4, geometric average 1926-1999 Beta = B 0.8 Source: Exhibit 4, historic betas (average) Cost of Equity = ke Source: CALCULATE: Risk-free rate plus Beta times market premium Cost of Equity (DDM) Dividend per share = Do $0.48 Source: Exhibit 4, dividend history Dividend growth rate = g 5.50% Source: Exhibit 4, Value Line forecast Nike's share price = Po $42.09 Source: Line 35 Cost of equity = ke Source: CALCULATE: Current dividend yield plus dividend growth rate Debt and Equity Weights Amount Debt value 1,296.6 Source: Exhibit 2, current portion of LTD, notes payable, and LTD Market value equity Source: CALCULATE: Current market price x number of shares outstanding Total capital Source: CALCULATE: Sum of debt and market value of equity WACC Source: CALCULATE: weighted average of cost of debt and cost of equity (use CAPM or average of CAPM and DDM)