Nike, Inc.

Case Overview Nike's share price had declined significantly from the start of the year. Since 1997, Nike's revenues had plateaued at around $9 billion, while net income had fallen from almost S800 million to $580 million. Nike's market share in U.S. athletic shoes had fallen from 48 percent in 1997 to 42 percent in 2000. In addition, recent supply-chain issues and the adverse effect of a strong dollar had negatively affected revenue. Management revealed plans to address both top-line growth and …

…debt= Notes payable + CPLTD + MV of LTD MV of total = 855.3 + 5.4 + 95.6%(436)=$1277 Market value of Equity Current Price =$42.09 Outstanding shares=271.5 MV of equity = $42.09 x 271.5 =$11,427 Total value = $11427 + $1277=$$12,705 Debt/Value = 1277/12705 =10% Equity/Value = 90% Using the costs previously calculated along with the market value weights, we may calculate the weighted average cost of capital as follows: WACC = 10% (7.16%)(1-0.38)+ 90% (9.81%)=9.27% WACC = 6.48% DDM WACC = 5.39% ECM Since both of these two WACCs are less than cost of debt, they should be rejected for investment evaluations.