WACC= E/(E + D) * Cost of Equity + D/(E + D) * Cost of Debt *(1 - Tax Rate)

Market value of equity (E) for NIKE is $109470.700 mil

Book Value of Debt (D) is $2920 mil.

Weight of equity: E/(E+D) = 109470.7/(109470.7+2920) = 0974

Weight of debt = D/(E+D)=2920/(10947.7+2920)=0.026

To calculate cost of equity:

Cost of equity = Risk free rate + Beta * (Expected return of market risk free rate)

Risk free rate is 2.97% (it is the 10 year treasury constant maturity rate)

Nike Inc Beta is 0.55 (Yahoo finance)

Market premium is 6%.

So cost of equity = 2.97% + 0.55 * 6% = 6.27%

Cost of Debt:

As of May 2017, Nike interest expense= $59 million. And its debt was $2920 million.

Cost of debt = 59/2920 = 2.0205%

Average tax rate for Nike:

The two-year average tax rate: (13.22+18.67)/2= 15.945%

WACC= E/(E + D) * Cost of Equity + D/(E + D) * Cost of Debt *(1 - Tax Rate)

=0.974 * 6.27% + 0.026 * 2.0205% * (1-15.945%)

=6.15%

Propose an expansion project for the company from question 1 in a business area that is different from its current area(s). Find asset return in the proposed area of business. Find weighted average cost of capital of the expansion project assuming that the company would finance it with the same mixture of debt and equity as the rest of the company.