Consider the following data for Nike Inc.: In 2018, it had $37,000.00 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, 1,626 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 8.5% 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.
Related questions
| Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.6 million. The equipment will be depreciated straight line over 6 years to a value of zero, but in fact it can be sold after 6 years for $643,000. The firm believes that working capital at each date must be maintained at a level of 15% of next yearâs forecast sales. The firm estimates production costs equal to $1.90 per trap and believes that the traps can be sold for $6 each. Sales forecasts are given in the following table. The project will come to an end in 6 years., when the trap becomes technologically obsolete. The firmâs tax bracket is 35%, and the required rate of return on the project is 12%. Use the MACRS depreciation schedule. |
| Year: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | Thereafter |
| Sales (millions of traps) | 0 | .4 | .5 | .7 | .7 | .5 | .3 | 0 |
| Suppose the firm can cut its requirements for working capital in half by using better inventory control systems. By how much will this increase project NPV? (Enter your answer in millions rounded to 4 decimal places.) |
| NPV | $ million |
