Consider the following data for Nike Inc.: In 2009 it had $19.100 million in sales with a 10% growth rate in 2010, bu...
Consider the following data for Nike Inc.: In 2009 it had $19.100 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, $32 million in debt, 486 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 %7% and 11% (with growth slowing linearly to 5% by year 2015). What range of prices for Nike stock is consistent with these forecasts? 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? 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? d. What range of stock prices is consistent if you vary the estimates as in parts (a), (b), and (c) simultaneously?
Homework Answers
Base-case valuation table:
Using the above table and varying the items as given in the respective sub-parts, share price range can be found.
a). Initial growth rate ranges from 7% to 11%:
Highest price = $72.94
Lowest price = $66.49
b). Initial EBIT margin ranges from 9% to 11%:
Highest price = $78.44
Lowest price = $64.12
c). WACC ranges from 9.5% to 12%:
Highest price = $78.79
Lowest price = $51.98
d). Highest price (Initial growth rate = 11%, EBIT margin = 11%, WACC = 9.5%) = $88.83
Lowest price (Initial growth rate = 7%, EBIT margin = 9%, WACC = 12%) = $44.01
Note: Valuation table for each scenario cannot be uploaded due to the answer word limit.
Formula Sn-1*(1+g) Given %age of S 10%*(Sn-Sn-1) EBIT*(1-Tax rate) - Inc. in NWC FCF2015/(WACC - g) FCF + TV NPV of all cash flows Time (n) Year Growth rate (g) Sales (S) EBIT Increase in NWC FCF Terminal value (TV) Total cash flow (TCF) 1 2 3 4 5 Perpetuity 2009 2010 2011 2012 2013 2014 2015 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 19100.0 21010.0 22900.9 24733.0 26464.3 28052.1 29454.7 2101.0 2290.1 2473.3 2646.4 2805.2 2945.5 191.0 189.1 183.2 173.1 158.8 140.3 1405.8 1551.4 1696.5 1838.2 1973.2 2098.3 41966.0 1405.8 1551.4 1696.5 1838.2 43939.2 32373.0 -32.0 2300.0 34641.0 486.0 EV Less: debt Add: cash Equity value No. of shares (in mn) EV - debt + cash Equity value/No. of shares Price per share Base case 71.28 71.63
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Consider the following data for Nike Inc.: In 2009 it had $19.100 million in sales with a 10% growth rate in 2010, bu...
Consider the following data for Nike Inc.: In 2009 it had $19,300 million in sales with a 10% growth rate in 2010, but...
Consider the following data for Nike Inc.: In 2009 it had $19,300 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, $32 million in debt, 486 million shares outstanding,...
Consider the following data for Nike Inc: In 2009 it had $19,000 million in sales with...
Consider the following data for Nike Inc: In 2009 it had $19,000 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, $32 million in debt, 486 million shares outstanding,...
Consider the following data for Nike Inc. In 2009 it had $19.100 million n sales with a 10% growt...
Consider the following data for Nike Inc. In 2009 it had $19.100 million n 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 networking 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, $32 million in debt 486 million shares outstanding,...
Consider the following data for Nike Inc : In 2009 it had $19.300 million in sales...
Consider the following data for Nike Inc : In 2009 it had $19.300 million in sales with a 10% growth rate in 2010, but then slows by 1% to the long-un growth ate of 5% by 2015, Nike expects EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increases equal depreciation expenses. Nike also has $2.300 million in cash, $32 million in debt, 486 million shares outstanding, a tax rate of 24%,...
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Suppose that in July 2013, Nike Inc. had sales of $25,391 million, EBITDA of $3,261 million,...
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Consider the following data for Nike Inc.: In 2009 it had $19,300 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, $32 million in debt, 486 million shares outstanding,...
Consider the following data for Nike Inc: In 2009 it had $19,000 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, $32 million in debt, 486 million shares outstanding,...
Consider the following data for Nike Inc. In 2009 it had $19.100 million n 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 networking 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, $32 million in debt 486 million shares outstanding,...
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