SHOW ALL WORK IN EXCEL WITH GIVEN SOLUTIONS

Nike had sales of $25.3 billion in 2012. Suppose you expect its sales to grow at a rate of 10% in 2013, but then slow by 1% per year to the long-run growth rate that is characteristic of the apparel industry 5% by 2018. Based on Nikes past profitability and investment needs, you expect EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increase in sales, and capital expenditures to equal depreciation expenses. If Nike has $3.3 billion in cash, $1.2 billion in debt, 893.6 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10%,

What is your estimate of the value of Nikes stock in early 2013? (5 points) (Answer: 50.34)

Suppose you believe Nikes initial revenue growth rate will be between 7% and 11% (with growth always slowing linearly to 5% by year 2018). What range of prices for Nike stock is consistent with these forecasts? (5 points) (Answer: 46.89 to 51.53)

Suppose you believe Nikes initial revenue EBIT margin will be between 9% and 11% of sales. What range of prices for Nike stock is consistent with these forecasts? (5 points) (Answer: 45.18 to 55.5)

Suppose you believe Nikes weighted average cost of capital is between 9.5% and 12%. What range of prices for Nike stock is consistent with these forecasts? (5 points) (Answer: 36.44 to 55.75)

What range of stock prices is consistent if you vary the estimates as in parts (b), (c), and (d) simultaneously? (5 points) (Answer: 30.69 to 62.98)