Gmail Nike.pdf ar folder. Or import from another browser. Import favorites Exhib

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Gmail Nike.pdf ar folder. Or import from another browser. Import favorites Exhibit 1 Nike, Inc.: Cost of Capital Consolidated Income Statements Year Ended May 31 (m millions of dollars except per-share data) 1995 1996 1997 1998 1999 2000 2001 $ 4,760.8 $ 6,470.6 $9,1865 $9,553.1 $ 8,7769 $8,995.1 $ 9,4888 Cost of goods sold Gross profit Selling and administrative Operating income Interest expense Other expense, net Restructuring charge, net Income before income taxes Income taxes Net income 286533,906.7 5,503.0 6,065S 5,493.5 5403.8 5,784.9 1,95.6 2,563.9 3,683.5 3,487.6 3,283.4 3,591.3 3,703.9 2.6064 2,689.7 984.9 1,014.2 24.2 39.5 52.360.0 44.1 45.058.7 11.7 36.7 32.3 209 215 23.2 34.1 1,2098 1,588.6 2303.7 26238 24266 S56.8 685.S 975.3 1,379.8 S63.8 649.9 99.1 1,295.2 653.0 746. 919.2 921.4 331.7 S 399.7 S 553.2 S 795.S S 399.6 S 451.4 S 579.1 S 5$9.7 345.9 Diluted earnings per common share Average shares outstanding (diluted)2940 2936 297.0 2960 287.5 2798 273.3 Growth (%) Revenue 136 S 1.88 268 S 13S s 157 S 207 s 2.16 42.0 Operating income Net income 4.0 (8.1) 25 422 415 (37.4) (08)15.0 384 43.9 (49.8) 130 28.3 3.0 18 Margins (%) Gross margin Operating margin Net margin 40.1 8.7 386 15.1 8.5 9.8 10.7 6.2 Effective tax rate (%). 38.5 38.8 36.0 "The U S statutory tax rate was 35% The state tax vaned yearly from 2.5% to 3.5% Sources of data Company filing with the Secunities and Exchange Commistion (SEC), UBS Wartarg

Explanation / Answer

Cost of debt is calculate as the yield to maturity of the bonds issued

Given coupon rate = 6.75% semi annually, pmt = 0.0675*1000 = $67.5 = 67.5/2 = $33.75 semi annual

The number pf periods (nper) = 25 years (from 7/15/96 to 7/15/21) = 25*2 = 50 semi annual periods

Price = 95.60 per 100. So price per 1000 = $956

face value =1000

Semi annual yield = rate(nper,pmt,pv,fv) in excel =rate(50,33.75,-956,1000) = 3.5648%

Annual Yield (YTM) = 3.5648*2 = 7.1296%

The after tax cost of debt = YTM *(1-tax rate) = 7.1296*(1-0.38) = 4.42%

Cost of debt = 4.42%

Weight of debt: We have to know the total market value of debt and equity for this

Market value of equity = 271.50 Million shares * 42.09 = 11,427.43 Million

Market value debt = 470.3 Million (Book value) = 95.60% (Price) = 449.61 Million

Weight of debt = 449.61/(11427.43+449.61) = 0.03785 or 3.79%

Weight of debt = 3.79%

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