Nike reported book value per share of $15.93 at the end of its 2008 fiscal year. Analysts were forecasting earnings of $3.90 per share for 2009 and $4.45 for 2010, and were also forecasting a five-year growth rate in EPS of 13 percent per year. Prepare a five-year pro forma of earnings based on these forecasts and convert the forecasts to a valuation with the added forecast that residual earnings will grow at the GDP growth rate of 4 percent per year after 2013. Use a required return of 10 percent in your calculations. Table 5 .2 in this chapter will help you.

Nike traded at $60 per share at the time. Based on your calculations, do you think Nike is reasonably priced? What does your analysis tell you about the long-run growth rate that the market is forecasting for Nike?