Estimating the Cost of Capital
Autor: emmahannah • February 16, 2014 • Business Plan • 267 Words (2 Pages) • 2,285 Views
Estimating the Cost of Capital
Case 13: Best Practices in Estimating the Cost of Capital: Survey and Synthesis
You have open-topics for this Case. That is, you can provide in your own questions, and then give answers.
Case 14: Nike, Inc.: Cost of Capital
The following discussion questions are for reference only.
1. What is the WACC and why is it important to estimate a firm’s cost of capital? Do you agree with Joanna Cohen’s WACC calculation? Why or why not?
2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions.
3. Calculate the costs of equity using CAPM, the dividend discount model, and the earnings capitalization ratio. What are the advantages and disadvantages of each method?
4. What should Kimi Ford recommend regarding an investment in Nike?
Group Case - Case 16: The Boeing 7E7
The suggested questions for you to consider are listed below:
1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7?
a. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74-year equity market risk premium (EMRP) was estimated to be ___. Which beta and risk-free rate did you use? Why?
b. When you used the capital asset pricing model, which risk-premium and risk-free rate did you use? Why?
c. Which capital-structure weights did you use? Why?
2. Judged against your WACC, how attractive is the Boeing
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