1. What is the weighted-average cost of capital (WACC)? What does it represent? Why is it important to estimate a firms cost of capital?
2. Complete the estimation of Nikes stock price using the information given in the spreadsheet Cash Flow Estimation and assuming the analysts estimation of WACC was correct. The completed estimation should be presented in the area marked in yellow in the spreadsheet. (Note that if you use the analysts estimate of WACC of 12%, your estimation of the stock price should be $37.27)
3. You can calculate the cost of equity using CAPM or the dividend discount model. What are the advantages and disadvantages of each method?
4. Calculate the costs of equity using CAPM and the dividend discount model. Estimate Nikes cost of debt. The information needed is given in the spreadsheet Cost of Capital in the Excel file.
5. Calculate your WACC for Nike and clearly justify your assumptions.
6. What should you recommend regarding an investment in Nike?