Question

Nike Inc. had sales of $ 19.2 billion in 2009. It expects that its sales to grow at a rate of 10% in 2010, but then slow down by 1% per year to the long run growth rate that is characteristic of the apparel industry -5% - by 2015. Based on Nikes past profitability and investment needs, it is expected EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increase in sales and capital expenditures to equal depreciation expenses. If Nike has $2.3 billion in cash, $32 million in debt, 486 million shares outstanding, a tax rate of 24% and a weighted average cost of capital of 10%, what is the estimated value of Nikes’ stock in early 2010? If Nike Inc. can reduce its operating expenses and raise its EBIT to 11%, how would the estimate of the stocks’ value change?

          Nike Inc. had sales of $ 19.2 billion in 2009. It expects that its sales to grow at a rate of 10% in 2010, but then slow down by 1% per year to the long run growth rate that is characteristic of the apparel industry -5% - by 2015. Based on Nikes past profitability and investment needs, it is expected EBIT to be 10% of sales, increases in net working capital requirements to be 10% of any increase in sales and capital expenditures to equal depreciation expenses. If Nike has $2.3 billion in cash, $32 million in debt, 486 million shares outstanding, a tax rate of 24% and a weighted average cost of capital of 10%, what is the estimated value of Nikes’ stock in early 2010? If Nike Inc. can reduce its operating expenses and raise its EBIT to 11%, how would the estimate of the stocks’ value change?

Added by Sylivia T.

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