1. The levered beta for Nike is 0.88, calculated using monthly returns over the last 5 years and against
2. the S&P 500 Index. Nike is currently rated A+, and A+ rated bonds trade at a default spread of 1.0% over the long-term treasury bond rate. The current stock price for the firm is $ 62 and there are 493 million shares outstanding.
3. Nike expects to finance this apparel division using the same mix of debt and equity (in market value terms) as it is using currently in the rest of its business.
4. Nike's tax rate is 40%.
5. The current long-term Treasury bond rate is 3.5%. You can use the historical risk premium of 4.3%
6. as your equity risk premium.
7. Added Clarifications
8. Time: You can assume that the current year has just ended and that now is time 0. Year 1 begins today and the end of year 1 is a year from today.
9. For missing information, please make your own assumption.
10. Questions on the Project

1. Accounting Return Analysis

Estimate the operating income from the proposed apparel division investment to Nike over the next 12 years.

2. Cash Flow Analysis

• Estimate the after-tax incremental cash flows(FCFF) from the proposed apparel investment to
• Nike over the next 12 years.
• If the project is terminated at the end of the 12th year, and both working capital and investment
• in other assets can be sold for book value at the end of that year, estimate thenet present valueof this project to Nike andthe modified internal rate of return.