NikeInc: cost of capital

Kimi Ford a portfolio manager at NorthPoint group write up of Nike ,Inc. Nike share
price has declined Ford considering buying some shares for the fund she managed, the
NortPoint Large- Cap Fund, which invested mostly in Fortune 500 companies. The
NorthPoint Large- Cap Fund had performed extremely well. However for Nike since 1997 its
revenues had plateau at around $9 billion , while net income had fallen from almost $800
million to $580 million . Nike `s market share had fallen from 48% in 1997 to 42% in 2000.
The issue is whether Ford should buy share in Nike Inc or not as she got unclear guidance
for this matter.
The issue is to examine if the share price of Nike is under value or overvalue to guide
investors to buy or not. If Nike discount price is 12% its stock is overvalued if below
11.17% is undervalued.
To solve the issue of Ford, WACC been used to calculate overall performance of the
company. The WACC is set by the investors (or markets), not by company. As the
par value is not been given so just estimate the wacc. The reason of estimating WACC
is to value the cash flows for the entire firm that is provided by Kimi Ford. Plus, the
business segments of Nike basically have about the same risk thus, a single cost is sufficient
for this analysis.
The recommendation is that , the company should invest as the value of wacc is
undervalued and should be added to the North Point Large-Cap Fund as it has growth
potential that would be beneficial to the fund. Along with this fact, management has goals
for the near future that could provide a great deal of profit for Nike Inc.