Nike Corporate Case

Lukas Stump

905556475

Asset valuation

Assignment 7

1) Out of all the projects project three would be ideal in my opinion. It has I very high payback period but looking more into depth the NPV is the highest of all. Even if you have to wait a longer period of time the return is worth the wait. That is also assuming that the other projects you cannot reinvest and do two projects in the single life of project three. It also has a very high return on investment. This is ideal because you are getting a lot of bang for your bug compared to your initial investment.

2) If the bonds yield decreases the value of the bond increases and vise versa. It has a inverse relationship. The Years to maturity effects a bond in a few ways it can either decrease the price or increase the price of a bond depending on how high the coupon rate is. The less the coupon rate the more the bond will be selling at a discount because they will not be receiving as much in periodic interest and will receive more at maturity.

3) The relationships compared to WACC would be very similar. The higher the YTM rate the higher your cost of debt would be affecting the WACC. So in turn you might benefit more from a higher coupon lower YTM or a lower coupon and lower YTM. Time period is also an effect. The longer you hold a bond the more you owe and it becomes risky for the bondholder. This usually reflects in a bond price in a higher price. The corporation would be better to issue shorter periods of debt beneficial to the bondholder like a put option. This way cost of capital could remain low.