Required

1. Calculate the free cash flows for fiscal years 2013, 2014 and 2015

.2. Calculate the enterprise value of Nike Inc. as of May. 31, 2015 using the discounted cashflow valuation method.

3. Explain potential difficulties an analyst may encounter when applying the DCF valuationin practice.

ACCT3013 Group B presentation guide (Semester 1, 2017) Description Group B students are required to demonstrate cash-based valuation on Nike Inc. The statement of cash flows extracted from Nike Inc. 2016 annual report is provided below Consolidated Statements of Cash Flows - USD ($) 12 Months Ended May. 31, 2014 May. 31, 2013 $ 3,273 $ 2,693 $ 2,472 606 518 438 (113) (11) 20 191 177 174 43 68 64 424 56 66 0 0 (124) (Increase) decrease in accounts receivable (216) (298) 142 (Increase) in inventories (621) (505) (219) (Increase) in prepaid expenses and other current assets (144) (210) (28) Increase in accounts payable, accrued liabilities and income taxes payable 1,237 525 27 Cash provided by operations 4,680 3,013 3,032 Purchases of short-term investments (4,936) (5,386) (4,133) Maturities of short-term investments 3,655 3,932 1,663 Sales of short-term investments 2,216 1,126 1,330 Investments in reverse repurchase agreements (150) 0 0 Additions to property, plant and equipment (963) (880) (598) Disposals of property, plant and equipment 3 3 14 [$ in Millions] May. 31, 2015 Cash provided by operations: Net income Income charges (credits) not affecting cash: Depreciation Deferred income taxes Stock-based compensation (Note 11) Amortization and other Net foreign currency adjustments Net gain on divestitures Changes in certain working capital components and other assets and liabilities: Cash used by investing activities: Proceeds from divestitures 0 0 786 (Increase) in other assets, net of other liabilities 0 (2) (2) (175) (1,207) (940) 0 0 986 (7) (60) (49) (Decrease) increase in notes payable (63) 75 10 Payments on capital lease obligations (19) (17) 0 Proceeds from exercise of stock options and other stock issuances 514 383 313 Excess tax benefits from share-based payment arrangements 218 132 72 (2,534) (2,628) (1,674) (899) (799) (703) (2,790) (2,914) (1,045) (83) (9) 36 Net increase (decrease) in cash and equivalents 1,632 (1,117) 1,083 Cash and equivalents, beginning of year 2,220 3,337 2,254 CASH AND EQUIVALENTS, END OF YEAR 3,852 2,220 3,337 53 53 20 1,262 856 702 206 167 137 $ 240 $ 209 $ 188 Cash used by investing activities Cash used by financing activities: Net proceeds from long-term debt issuance Long-term debt payments, including current portion Repurchase of common stock Dividends common and preferred Cash used by financing activities Effect of exchange rate changes on cash and equivalents Cash paid during the year for: Interest, net of capitalized interest Income taxes Non-cash additions to property, plant and equipment Dividends declared and not paid Additional information & assumptions Nike's applicable tax rate is 35%. Nike's interest income figures for fiscal years 2015, 2014 and 2013 are $5, $6 and $12 million, respectively. Nike's cost of capital is 10%. Nike's free cash flow is expected to grow at 6% per annum from the fiscal year 2016 to 2020 and at 4% per annum from the fiscal year 2021 onwards. Required 1. Calculate the free cash flows for fiscal years 2013, 2014 and 2015. 2. Calculate the enterprise value of Nike Inc. as of May. 31, 2015 using the discounted cash flow valuation method. 3. Explain potential difficulties an analyst may encounter when applying the DCF valuation in practice. Useful formulas for DCF calculations: Cash flow from operations = Reported cash flow from operations + After-tax net interest payments Cash investment in operations = Reported cash flow used in investing activities - Net investment in financial assets Free cash flow = Cash flow from operations - Cash investment in operations