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Consider the following data for Nike Inc. In 2009 it had S19, 150 million in sales with a 10% growth ate in 2010 but then slows by 1% to the long un gowth rate of 5% by 2015 Nike expects E Tto be 10% sales ncreases nne work ng capital equ ements to be 10% of any creases n sales and capital expenditures to equal depreciation expenses. Nike also has S2.300 million in cash $32 million in de 486 million shares outstanding, a tax rate of 24%, and a weighted average cost of capital of 10% a Suppose you believe Nikes ntial revenue growth rate will be between 7% and 11% ith gr th slow ng linearly to 5% by year 2015) What range of p ces for Nike stock is consistent with these forecasts? Suppose you believe Nikes 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 Nikes weighted average cost of capital is between 9 5% and 12% what range of pnces 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?
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Growth Rate Long run growth rate Decrement per year 10.00% 5.00% 1.00% EBIT Margin WACC 10% 10% 2009 Year Growth rate Sales EBIT Tax @ 24% PAT Less: increase in NWC Free Cash Flow TV Total 20102011 2012 2013 20142015 10% 8% 6% 5% 19150.00 21065.00 22960.85 24797.72 26533.56 28125.57 29531.85 1915.00 2106.50 2296.09 2479.77 2653.36 2812.56 2953.19 505.56 551.06 595.15 636.81 675.01 708.76 1455.40 1600.94 1745.02 1884.63 2016.55 2137.54 2244.42 191.50189.59 183.69 173.58 159.20 140.63 1409.44 1555.44 1700.94 1842.97 1978.34 2103.79 4179.6 459.60 1409.44 1555.44 1700.94 1842.97 1978.34 46283.44 Firm Value NPV$32,457.70 $2,300.00 S32.00 $34,725.70 486.00 $71.45 Add: Cash Less: Value of Equity Divided by Share Value a) Initial Growth 796 896 9% 1096 1196 66.65 $68.22 $69.82 $71.45 $73.12 EBIT Margin 9% 10% 1196 $64.27 $71.45 $78.63 WACC 9.5% 1096 1196 12% $78.98 $71.45 $60.17 $52.11 d) Range of Stock Prices EBIT Margin 9% WACC 9.50% 10% 66.2092 60.0201 50.7381 44.1098 67.7729 61.4093 51.8663 45.0525 69.3686 62.8268 53.0173 46.0141 70.9968 64.273 54.1914 46.9948 72.6581 65.7484 55.389 47.9949 11% 12% Growth Rate 896 9% 10% 11% EBIT Margin 11% WACC 10% 9.50% 80.9561 73.2883 61.7883 53.5759 82.9178 75.0335 63.2097 54.767 84.9196 76.8142 64.6598 55.982 86.9622 78.6311 66.139 57.2211 89.0463 80.4846 67.6478 58.4848 11% Growth Rate 8% 9% 10% 1196

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