Mergers and acquisition nike case

Mergers and acquisition nike case

Individual Assignment – Nike Case Write-Up Mergers & Acquisitions

I. Introduction (Objective of the Assignment)

The Nike Case Study 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 calculation that contains errors based on conceptual misunderstandings. Students will identify and explain the mistakes in the analysis. The case assumes that students have been exposed to the WACC, CAPM, the dividend discount model, and the earnings capitalization model.

II. Assignment Requirements

Complete the Nike Case Study reading (found in the Readings and Course Materials folder). Put yourself in the role of one of the stakeholders in the case, and reflect on the information in the document. Make sure to address the following items:

1. What is the WACC and why is it important to estimate a firm’s cost of capital? [2 to 3 sentences max.]

2. Calculate your own WACC for Nike. Note the following requirements: a. Calculate the Cost of Debt based on the information provided in the case.

[Fill in the highlighted Excel cells; explain your calculation briefly] b. When you are calculating the Cost of Equity, do it under three different

scenarios: i. CAPM [Fill in Excel file] ii. Dividend Discount Model [Fill in Excel file] iii. Earnings Capitalization method [Fill in Excel file]

c. Summarize what the WACC would be in 3 different scenarios: using the Cost of Debt and three different Cost of Equity percentages.

3. Highlight/note any differences versus Joanna Cohen’s calculation. 4. Which of your three WACC calculations (based on the 3 different Costs of Equity)

do you think makes the most sense and why?

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