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BACKGROUND

Kimi Ford, a portfolio manager of a large mutual fund management firm, is looking into the viability of investing in the stocks of Nike for the fund that she manages. Ford should base her decision on data on the company which were disclosed in the 2001 fiscal reports. While Nike management addressed several issues that are causing the decrease in market sales and prices of stocks, management presented its plans to improve and perform better. Third party sources also gave their opinions on whether the stock was a sound investment.

PROBLEMS:

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 is it important to estimate a firm's cost of capital? What does it represent?

2. Calculate the costs of equity using CAPM and the dividend discount model. What are the advantages and disadvantages of each of these methods? Are they any other methods you could use?

3.......

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Approximate Word Count: 1436
Approximate Pages: 6 (250 words per double-spaced page)

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