Remco de Waard Financial Management Case: Nike Inc.: Cost of Capital HULT International Business School March 2, 20141. Introduction Miss Ford is a portfolio manager for Northpoint Group, a mutual fund management company. Kimi is considering buying Nike Inc. shares for the NorthPoint Large-Cap fund he manages. A week before starting the research, Nike presented its fiscal 2001 results at an analyst meeting. The main purpose of this meeting was to communicate the new strategy to revitalize the company. Nike had seen its revenue stream stagnate since 1997 at a level of $9 billion. Over this time period, net profit had declined from $220 million to $580 million in 2001. Recent reports had shown that Nike's market share of the US sneaker market had dropped from 48% in 1997 to 42% in 2000. Management stated the importance of the mid-price shoe range at the analyst meeting and expressed intent to develop more shoes in the $70 price range - $90. Nike's clothing line had proven to have growth potential under the leadership of Mindy Grossman, an industry veteran. Focusing on mid-range shoes and extending operations into the apparel sector were part of a package of measures to be continued with a revenue growth target of 8-10% and an earnings growth target of more than 15%. Another part of the measurements involved reducing expenses, focusing on operational performance. To make an appropriate investment decision for her mutual fund, Ms. Ford performed her own discounted cash flow forecast. This forecast showed that Nike stock was overvalued by $5.95 per share while maintaining a 10% discount rate. A sensitivity analysis showed that the stock was undervalued at discount rates below 9.4%. To tell the truth... middle of paper... in the period from mid-2002 to 2008, when the crisis hit the stock markets. Ms. Ford would have been wise to follow the advice to wait with the stock purchase and keep an eye on Nike, since management changes on stock prices began to have an impact in mid-2002. This happened a year after this case was written. All calculations are represented in the Excel sheet and presented in the attachments. Exhibit 1. : Financial projections Exhibit 2. : Cost of capital, WACC Exhibit 3. : Cost of capital, dividend discount model Exhibit 4. : Cost of capital, capitalization of profits Exhibit 5. : Share price evaluation Exhibit 6. : Nike Inc. Commercial prices 01-06-2001 > 31-05-2011Show 1.Show 2.Show 3.Show 4.Show 5.Show 6. : Nike Inc. Trading Prices 06-01-2001 > 31-05-2011Source: http://www.marketwatch.com/investing/stock/NKE