Executive SummaryIntroductionKimi Ford, a portfolio manager at NorthPoint Group, a mutual fund management firm, was considering purchasing shares for the fund she manages, NorthPoint Large -Cap Fund, with particular focus on value investments. Ford held an analyst meeting to disclose its fiscal 2001 results and, more importantly, to communicate a strategy to revitalize the company. Nike has maintained revenue of about $9 billion since 1997. However, its net profit has fallen from nearly $800 million to $580 million. Furthermore, Nike's market share in US sneakers dropped from 48% in 1997 to 42% in 2000. To increase revenues, management decided to develop more sneaker products in the mid-price segment, sold at $70-$90 a pair. . As for the cost side to consider, Nike plans to exert more efforts on expense control. Company executives projected long-term revenue growth targets of 8% to 10% and earnings growth targets above 15%. To make an investment decision regarding the mutual fund she manages, Ford decided to develop her own discounted cash flow forecast. Because Ford wasn't sure whether to buy stock, it asked Cohen to estimate Nike's weighted average cost of capital. Obviously, this case aims to evaluate Joanna's analysis. Throughout the analysis, we will estimate the cost of debt, cost of equity and cost of capital through different financial analysis models. WACC ApproachThe WACC is the weighted average return on capital that includes both the cost of debt and the cost of equity, for which we discount the total cash flows using the appropriate discount rates. Using the Capital Asset Pricing Model (CAPM), Cohen calculated a weighted average cost of capital (WACC) of 8.4%… middle of the paper… this model would not fit this case simply because it does not take into account the growth factor and therefore is considered inconsistent here and should not be used in calculating the cost of capital. The final model used to calculate the cost of capital was the earnings capitalization model. The problem with this model is that it does not take into account the growth of the company. We therefore chose to reject this calculation. The earnings capitalization model calculations were obtained like this: ECMECM = E1/Po216/42.095.31% Recommendation Sensitivity analysis revealed that Nike was undervalued at a discount rate of less than 11.17%, when we calculated the WACC our solution was 9.87%. Any estimate lower than the prescribed discount rate means the stock is undervalued, therefore it is undervalued and this implies that Nike is a stock to buy.