Harvard Business School Case Study
This week’s homework is a Harvard Business School Case Study. The subject is the Cost of Capital.
The assignment for the case study is below. Make sure you answer all four questions.
Case: Nike Cost of Capital (attached)
Harvard Business School Case Study (Actually a UVA Darden Case)
Nike, Inc.: Cost of Capital (v. 1.8)
Product Number: UV0010
Author(s): Robert F. Bruner, Jessica Chan
Publication Date: Oct 10, 2001
This case is intended to serve as an introduction to the calculation of the weighted-average cost of capital (WACC) of the firm. The case provides a WACC. Your assignment is to review the WACC, identify, explain any mistakes in the analysis, answer several key questions and draw your own conclusions.
Your Assignment – Answer the following questions:
- What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not?
- What was your estimate of WACC? What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating the cost of equity? Calculate the costs of equity using CAPM.
- Why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers?
- What should Kimi Ford recommend regarding an investment in Nike?