Q Individual Assignment - Nike Case Write-Up Mergers & Acquisitions Introduction (Objective of the Assignment) The Nike Case Study 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. Students will 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. Assignment Requirements Complete the Nike Case Study reading (found in the Harvard CoursePack). Put yourself in the role of one of the stakeholders in the case and reflect on the information in the document. Make sure to address the following items: 1. What is the WACC and why is it important to estimate a firm’s cost of capital? [2 to 3 sentences max.] 2. Calculate your own WACC for Nike. Note the following requirements: a. Calculate the Cost of Debt based on the information provided in the case. [Fill in the highlighted Excel cells; explain your calculation briefly] b. When you are calculating the Cost of Equity, do it under three different scenarios: i. CAPM [Fill in Excel file] ii. Dividend Discount Model [Fill in Excel file] iii. Earnings Capitalization method [Fill in Excel file] c. Summarize what the WACC would be in 3 different scenarios: using the Cost of Debt and three different Cost of Equity percentages. 3. Highlight/note any differences versus Joanna Cohen’s calculation. 4. Which of your three WACC calculations (based on the 3 different Costs of Equity) do you think makes the most sense and why? You should have the following section in your final submission. They should look something like this: 1. What is your WACC and Why is it Important? Your answer… 2. WACC Calculations A Summary of your findings. You will submit the Excel file separately. 3. Differences vs. Joanna Cohen Your answer… 4. WACC Recommendation Your answer…. Assignment Format Students will submit the filled out provided Excel file (answering the highlighted cells), and their write-up by the due date. The write-up should be brief and organized to answer the questions listed in section II. It should be 2 pages maximum, double-spaced, with Calibri (12 pt). This assignment should also have a cover page with: • Your name • The course number/name • Your instructor’s name Rubric This is an individual assignment and accounts for 5% of your overall grade. You will be assessed according to the following rubric. Superior High Quality Average Below Average Poor Submitting assignment on-time 10 pts 0 Write-Up (20 pts) Formatting and Creativity - Student correctly incorporates all formatting requirements. Student identifies a role in the case and analyzes the case from that perspective; i.e. the student “owns” the case. Writing is free of grammatical and spelling errors. Writing style communicates ideas clearly. 5 pts 4 pts 3 pts 2 pts 1 – 0 pt What is WACC? - Student defines WACC and effectively communicates its importance in estimating a firm’s cost of capital. (2-3 sentences) 5 pts 4 pts 3 pts 2 pts 1 – 0 pt Difference b/t Joanna Cohen & You - Highlight/note any differences versus Joanna Cohen’s calculation 5 pts 4 pts 3 pts 2 pts 1 – 0 pt WACC Recommendation - Justifies selection of WACC calculation and provides rational analysis 5 pts 4 pts 3 pts 2 pts 1 – 0 pt Excel (20 pts) After-Tax Cost of Debt 5 pts 0 CAPM Cost of Equity 3 pts 0 DDM Cost of Equity 1 pt 0 Earnings Cap 1 pt 0