1. Why is it important to estimate a firms cost of capital? What does it represent? Is...
Question:
1. Why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers?
2. What was your estimate of WACC? What mistakes did Joanna Cohen make in her analysis? Which method is best for calculating the cost of equity?
3. What should Kimi Ford recommend regarding an investment in Nike?
This case is intended to serve as an introduction to the calculation of the weighted-average cost of capital (WACC) of the firm. The case provides a WACC calculation that contains errors based on conceptual misunderstandings. The task of the student is to identify and explain the mistakes in the analysis. The case assumes that students have been exposed to the WACC, CAPM, the dividend discount model, and the earnings capitalization model.
Step by Step Answer:
Case Studies in Finance Managing for Corporate Value Creation
ISBN: 978-0077861711
7th edition
Authors: Robert F. Bruner, Kenneth Eades, Michael Schill