FREE Trial

Consider the valuation of Nike given in Example 10.1. a. Suppose you believe Nikes initial revenue growth rate will be

Question:

Consider the valuation of Nike given in Example 10.1.

a. Suppose you believe Nike’s initial revenue growth rate will be between 7% and 11% (with growth always 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?


Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...

This problem has been solved!


Do you need an answer to a question different from the above? Ask your question!

Step by Step Answer:

Answer rating: 58% (12 reviews)

a If Initial Revenue Growth Rate can vary between 7 and 11 the stock price can vary between 66 82 and 73 30 b If Initial Revenue EBIT Margin can vary …View the full answer


answer-question
Answered By
tutor-profile-image
David Ngaruiya
i am a smart worker who concentrates on the content according to my clients' specifications and requirements.
4.50+ 7+ Reviews 19+ Question Solved
Related Book For  answer-question
Fundamentals of Corporate Finance

Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

See More Books
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Question Posted: January 14, 2012 02:11:11
See More Questions

Students also viewed these Corporate Finance questions

Q:
Consider the valuation of Nike given in Example 7.7. a. Suppose you believe Nikes initial revenue growth rate will be between 7% and 11% (with growth slowing linearly to 5% by year 2018). What range...
A:
Plan Value Nike under various assumptions of growth rate and discount rates Ex......
Q:
What is meant by the weighted average cost of capital (WACC)?
A:
Weighted average cost of capital WACC weighted average of......
Q:
Weighted average cost of capital American Exploration, Inc., a natural gas producer, is trying to decide whether to revise its target capital structure. Currently, it targets a 50-50 mix of debt and...
A:
a WACC 0 50 0 06 0 50 0 12 0 03 0 06 0 09 or 9 0 b WACC 0 70 0 06 0 30 0 12 0 042 0 036 0 078 or......
Q:
A sales invoice included the following information: merchandise price, $12,000; terms 1/10, n/eom, FOB shipping point with prepaid freight of $900 added to the invoice. Assuming that a credit for...
A:
Computation of discount on sales is given below Discount Net Sales Rate of discount 11 500 1 115 Wor......
Q:
Tonya purchased land for investment purposes in 2013 for $21,000. In 2016, she sells the land for $36,000. The terms of the sale require the purchaser to pay Tonya $12,000 per year for three years...
A:
The issue is whether Tonya should elect to recognize the 15 000 36 000 21 000 long term capital gain......
Q:
Pasha Corporation produces motorcycle batteries. Pasha turns out 1,400 batteries a day at a cost of $7 per battery for materials and labor. It takes the firm 22 days to convert raw materials into a...
A:
a Cash conversion cycle 22 40 30 32 days b Working capital financing 1 400 X 32 X......
Q:
Define as the sum of the two improper integrals Use the Comparison Test to show that J converges. = 50 10 J = dx x1/2(x + 1)
A:
For the first integral note that for 0 x 1 we have 1 1 x so that x x 1 x It follows that So dx 1......
Q:
STATEMENT OF CASH FLOWS Refer to Problem 23-9A. The following additional information was obtained from Muellers financial statements and auxiliary records for the year ended December 31, 20-2:...
A:
Mueller Company Statement of Cash Flows For Year Ended December 31 20 2 Cash flows from op......
Q:
You have gathered the following information on your investments. What is the expected return on the portfolio? Stock Number of Shares F 330 G 325 H 265 Price per Share $42 $28 $54 Expected Return
A:
To calculate the expected return on the portfolio we need to multiply t......
Q:
Write a program that produces calendars as output. Your program should have a method that outputs a single months calendar like the one below, given parameters to specify how many days are in the...
A:
public class Calendars public static void main String args printMonth 31......
Q:
Sora Industries has 60 million outstanding shares, $120 million in debt, $40 million in cash, and the following projected free cash flow for the next four years (see MyFinanceLab for the data in...
A:
Cost of Capital 10 00 Long run growth rate 5 00 Cost of goods sold as a percent of sales 67 00 Selli......
Q:
You notice that Dell Computers has a stock price of $27.85 and EPS of $1.26. Its competitor Hewlett-Packard has EPS of $2.47. What is one estimate of the value of a share of Hewlett-Packard stock?
A:
Plan Since Dell Computers and Hewlett Packard are in the same industry......
Q:
Use the following scenario for the next 3 questions. Supposethat monthly sales volume for a product is normally distributed, with a mean of 500 units and a standard deviation of 50 units. If x...
A:
1 P x 450 P X mea......
Q:
6 (2pts) Given F(A, B, C) = BC A, choose its correct SOP form. A. F(A, B, C) = AB + AC + AB B.F(A,B,C) = AB + AC + ABC C.F(A, B, C) BC + AB + AB D.F(A, B, C)= ABC + AB + AC E.F(A, B,C)= BC + AB + ABC...
A:
The detailed answer f......
Q:
What advantages did personal computers have over video game consoles in the late 1980s and much of the 1990s? Explain
A:
Personal computers in the late 1980s and much of the 1990s had several advantages over video game consoles 1 Versatility Personal computers were multi......
Q:
Identify a new market you would like to enter - choose a country where Lindor either is no t distributed or has relatively limited distribution . Retool the Lindor chocolate truffle balls in a way...
A:
New Market China Lindt currently has a limited presence in China with its products primarily sold in major cities and through high end retailers To ex......
Q:
Apply and map the following ER diagram to relational schema. Illustrate the connectivity within relations (tables) through connecting lines. GivenNames Surname Student ID Date of Birth YearEnrolled...
A:
Relational Schema Course course id program id FK Name Cre......
Q:
Given the linear system, x +y = a 3x +ay = 48 where a and B e R. (a) - For what values of a and B will the system have infinitely many solutions, (b)-For what values of a and B will the system have...
A:
Answer Let s analyze the given linear system x y a3x ay 4 x y a3x ay 4 We can write the system in au......
Q:
Imagine that you have two solutions of glucose in water. One solution consists of 1 g of glucose in 100 mL of water. The other consists of 10 g of glucose in 100 mL. Which solution has a more...
A:
The osmotic potential of a solution depends on its solute concentration The more solute particles in......
Q:
What are the risks and liability factors in an audit? What are the implications to the auditor? What are the implications to the organization? How can the auditor mitigate these risks and liability...
A:
Risk is defined as the potential for loss or harm Canadian Tourism Commission CTC 2003a This could be a financial loss damage to property or injury to workers or guests Understandably most tourism ope......
Q:
Calculating Project NPV In the previous problem, suppose the required return on the project is 12 percent, what is the projects NPV?
A:
Since we have the OCF we can find t......
Q:
Calculating Project Cash Flow from Assets In the previous problem, suppose the project requires an initial investment in net working capital of $300,000 and the fixed asset will have a market value...
A:
The cash outflow at the beginning of the project will inc......
Q:
NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the projects year 1 net cash flow now,...
A:
First we will calculate the annual depreciation for the equipment necessary for the project The depr......
Accounting A Measurement Approach For Managers 1st Edition - ISBN: 1138956201 - Free Book