Case Study: Nike, Inc.: Cost of Capital BUSFIN 4214 Written By: Joe Nau Nau.33@osu.edu Section: 32347 Cost of Capital NorthPoint Group’s strategy consists of identifying and investing in undervalued public companies. Joanna Cohen, an assistant to a portfolio manager at NorthPoint, is asked to help evaluate whether Nike Inc. is undervalued. Analysis by the portfolio manager shows that when Nike’s cash flows are discounted at 12% their shares are overpriced, however, when discounted at rates
Words: 1146 - Pages: 5
ENERGY PRICES ON TRANSPORTATION AND STORAGE SECTOR’S EQUITY RETURNS: THE IRANIAN CASE by ABSTRACT The purpose of this study is to examine the effect of oil and gas prices on transportation and storage sector’s equity returns in Iran. To this end, we analyze Iranian transportation and storage sector index for the period from the first week of January 2005 until the third week of March 2010. Based on the multifactor model and using time-series regression, our findings indicate that oil price is not
Words: 4747 - Pages: 19
Ahmed XXXXXX Course: XXXXX (Foundation of Financial Analysis and Investment (A) Course: MSC Finance Std: xxxxxxxxx Introduction Asset pricing models are very useful tools in calculating the risk and their respected return for the investors and they are being widely used by financial analyst. From different theories we can determine the value of assets into three steps i.e., Expected Cash Flow, number of periods and the expected rate of returns. Investors have several questions before investing
Words: 3539 - Pages: 15
CAPITAL ASSET PRICES WITH AND WITHOUT NEGATIVE HOLDINGS Nobel Lecture, December 7, 1990 by W ILLIAM F. S H A R P E Stanford University Graduate School of Business, Stanford, California, USA INTRODUCTION* Following tradition, I deal here with the Capital Asset Pricing Model, a subject with which I have been associated for over 25 years, and which the Royal Swedish Academy of Sciences has cited in honoring me with the award of the Prize in Economic Sciences in Memory of Alfred Nobel. I first present
Words: 9378 - Pages: 38
2012. Pp. 20 - 32 Pricing of Liquidity Risk in Emerging Markets: Evidence from Greater China Kuntonrat Davivongs1 and Pantisa Pavabutr2 This paper used the liquidity adjusted capital asset pricing model of Acharya and Pedersen (2005) to examine the liquidity risk of stocks in two retail-based equity markets, China and Taiwan during the period of 1996-2008. We found that the proportion of liquidity risk overwhelms market risk, unlike the findings in US markets. As a pricing factor, the evidence
Words: 6676 - Pages: 27
likely profits of the assets in the portfolio, weighted by the likely profits of each asset class. Expected return is calculated by using the following formula: | Written another way, the same formula is as follows: E(R) = w1R1 + w2Rq + ...+ wnRn Example: Expected Return For a simple portfolio of two mutual funds, one investing in stocks and the other in bonds, if we expect the stock fund to return 10% and the bond fund to return 6% and our allocation is 50% to each asset class, we have the
Words: 10559 - Pages: 43
Business Finance Table of Contents Unit 1 Agency Issue between shareholders and managers Unit 2 Investment appraisal methods Unit 3 Risks and Return Unit 4 Asset Pricing Models, CAPM & APT Unit 5 Capital Market Efficiency and Stock Market Anomalies Unit 6 Cost of Capital, Shareholder’s wealth, Gearing & Leasing Unit 7 The dividend decision Unit 8 Corporate Restructuring 1 Aim of the Module To provide learners with knowledge of the
Words: 8084 - Pages: 33
investors’ required returns. The case gives internal rates of return (IRR) for the 7E7 project under base-case and alternative forecasts. The students must estimate a weighted-average cost of capital (WACC) for Boeing’s commercial-aircraft business segment in order to evaluate the IRRs. As a result of that analysis, the students identify the key value drivers and distinguish, on a qualitative basis, the key gambles that Boeing is making. The general objective of this case is to exercise students’
Words: 7346 - Pages: 30
Companies I INTRODUCTION During the past three decades, CAPM (Capital Asset Pricing Model) has been studied in great depth and is used as the standard risk-return model by various researchers and academicians. The basic premise of CAPM is that the stocks with a higher beta yield higher returns for the investors. One of the conditions stipulated in the model is that the said return should be higher than the return of the risk-free asset. But, if the market return falls short of the riskless rate
Words: 4615 - Pages: 19
encyclopedia Jump to: navigation, search In finance, the Beta (β) of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500.[1] An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's
Words: 3561 - Pages: 15
