Business

By July 5, 2001 Nike’s share price had declined significantly from the beginning of the year. A week earlier on June 28 Nike held an analysts’ meeting to disclose its fiscal-year 2001 results, however the meeting had another purpose: Nike management wanted to communicate a strategy for revitalizing the company. Nike revealed plans to address both top-line growth and operating performance. To boost revenue, the company would develop more athletic shoe products in the mid-priced segment---a segment that Nike had overlooked in recent years. Nike also planned to push its apparel line, which, under the recent leadership of industry veteran Mindy Grossman, had performed extremely well. On the cost side, Nike would exert more effort on expense control. Finally, company executives reiterated their long-term revenue-growth targets of 8% to 10% and earnings-growth targets of above 15%.

To calculate Nike’s WACC you must first find the necessary weights of debt and equity being used. To find the debt you combine the book values of current long-term debt, notes payable, and long-term debt, which can all be found on Nike’s balance sheet. The values were $5.4 million, $855.3 million, and $435.9 million respectively. This calculation gives Nike a total debt of $1,296.9 million. To find Nike’s equity, you can use the book value of total shareholders’ equity which was also can be found on the balance sheet. The value was $3,494.5 million. Therefore, Nike’s debt plus equity is approximately $4,791.4 million. Dividing the values for debt and equity each by $4,791.4 million gives the weights to be used in the WACC formula. Debt was weighted as 27% and equity as 73%.