Consider the following data for Nike Inc.: In 2009 it had $19,150 million in sal

Question

Consider the following data for Nike Inc.: In 2009 it had $19,150 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-run growth rate of 5% by 2015. Nike expects EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increases in sales, and capital expenditures to equal depreciation expenses. Nike also has $2,300

million in cash, $3232 million in debt, 486486 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10%.

a. Suppose you believe Nike's initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts?

The range of prices will be:

Highest price share: $ ___________(Round to the nearest cent.)

Lowest price share:$____________ (Round to the nearest cent.)

b. Suppose you believe Nike's initial revenue EBIT margin will be between 9% and 11%

of sales. What range of prices for Nike stock is consistent with these forecasts?

The range of prices will be:

Highest price per share: $_________ (Round to the nearest cent.)'

Lowest price per share:$__________ (Round to the nearest cent.)

c. Suppose you believe Nike's weighted average cost of capital is between

9.5% and 12%.

What range of prices for Nike stock is consistent with these forecasts?

The range of prices will be:

Highest price per share: $___________(Round to the nearest cent.)

Lowest price per share:$___________ (Round to the nearest cent.)

d.Compute the stock prices when the initial revenue growth begins at 7%, the EBIT is 9% of sales, and the WACC is 12%.Then compute the stock price when the initial revenue growth begins at 11%, the EBIT is 11% of sales, and thecompany's WACC is 9.5%.

What is the range of prices under these scenarios?

The range of prices will be:

Highest price per share:$____________(Round to the nearest cent.)

Lowest price per share:$_____________(Round to the nearest cent.)

Explanation / Answer

a. Highest Price per share:$ 60%

Lowest Price per share:$ 45%

b, Highest Price per share:$ 55%

Lowest Price per share:$ 41%

c. Highest Price per share:$ 67%

Lowest Price per share:$ 51%

d. Highest Price per share:$ 78%

Lowest Price per share:$ 42%

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