Consider the following data for Nike$$ Inc.: In $2018,$ it had $ $37$ comma $000\mathrm{.}00$ million in sales with a $15\%$ growth rate in $2019,$ but then slows by $2\%$ to the$$ long$-$run growth rate of $5\%$ by $2024.$ Nike expects EBIT to be $13\%$ of$$ sales, increases in net working capital requirements to be $5\%$ of any increases in$$ sales, and capital expenditures to equal depreciation expenses. Nike also has $$$$525$ million in$$ cash, $$$$38$ million in$$ debt, $1$ comma $626$ million shares$$ outstanding, a tax rate of $25\%,$ and a weighted average cost of capital of $9\%.$

a$.$ Suppose you believe$$ Nike's initial revenue growth rate will be between $10\%$ and $20\%($with growth slowing linearly to $5\%$ by year $2024).$ What range of prices for Nike stock is consistent with these$$ forecasts?

b$.$ Suppose you believe$$ Nike's initial revenue EBIT margin will be between $12\%$ and $14\%$ of sales. What range of prices for Nike stock is consistent with these$$ forecasts?

c$.$ Suppose you believe$$ Nike's weighted average cost of capital is between $8\mathrm{.}5\%$ and $11\%.$ What range of prices for Nike stock is consistent with these$$ forecasts?

d$.$ What range of stock prices is consistent if you vary the estimates as in parts $($a$),($b$),$ and $($c$)$simultaneously$?$

Question content area bottom

Part $1$

a$.$ Suppose you believe$$ Nike's initial revenue growth rate will be between $10\%$ and $20\%($with growth slowing linearly to $5\%$ by year $2024).$ What range of prices for Nike stock is consistent with these$$ forecasts?

The range of prices will$$ be:

Highest price$$ share: $$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Lowest price$$ share: $$$

$$

enter your response here $($Round to the nearest$$ cent.$)$

Part $2$

b$.$ Suppose you believe$$ Nike's initial revenue EBIT margin will be between $12\%$ and $14\%$ of sales. What range of prices for Nike stock is consistent with these$$ forecasts?

The range of prices will$$ be:

Highest price per$$ share: $$$

$$

enter your response here. $($Round to the nearest$$ cent.$)$

Lowest price per$$ share: $$$

$$

enter your response here$($Round to the nearest$$ cent.$)$

Part $3$

c$.$ Suppose you believe$$ Nike's weighted average cost of capital is between $8\mathrm{.}5\%$ and $11\%.$ What range of prices for Nike stock is consistent with these$$ forecasts?

The range of prices will$$ be:

Highest price per$$ share: $$$

$$

enter your response here. $($Round to the nearest$$ cent.$)$

Lowest price per$$ share: $$$

$$

enter your response here $($Round to the nearest$$ cent.$)$

Part $4$

d$.$ Compute the stock prices when the initial revenue growth begins at $10\%,$ the EBIT is $12\%$ of$$ sales, and the WACC is $11\%.$ Then compute the stock price when the initial revenue growth begins at $20\%,$ the EBIT is $14\%$ of$$ sales, and the$$ company's WACC is $8\mathrm{.}5\%.$ What is the range of prices under these$$ scenarios?

The range of prices will$$ be:

Highest price per$$ share: $$$

$$

enter your response here $($Round to the nearest$$ cent.$)$

Lowest price per$$ share: $$$

$$

enter your response here $($Round to the nearest$$ cent.$)$

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