Leadership and Corporate Culture Essay Example | Topics and Well Written Essays - 750 words

Leadership and Corporate Culture - Essay Example To achieve this, corporate leaders must possess certain influences and powers that will enable them shape the cultures for the betterment of the organization and without infringing on the rights of either. The first tool most managers use is the delegation of duties. By delegating duties to their juniors in a responsible manner, the managers empower the employees who in turn will go to greater lengths to maintain consistency (Ferrell, Fraedrich & Ferrell, 2011).   Another crucial aspect is employee mentorship by the corporate leaders, who instill social and professional values on the employees that are in line with the attainment of the organization’s goals. Ferrell, Fraedrich, and Ferrell (2011) state that the corporate leaders can put in place proper conflict resolution mechanisms and good communication network in their quest to transform the organization’s culture. Perhaps the last but equally important power that a corporate leader can use to influence and shape t he general culture of the organization is to cultivate a culture of trustworthiness within the environment and outside the given organization. This normally has an effect of motivating the employees and subsequently identifying the organization with the said culture of motivation (Ferrell, Fraedrich & Ferrell, 2011).   Important ethical leaders in and organization and their various roles Varieties of ethical leaders exist with each having more or less distinct roles in an organization setting. Ethical leadership entails the consistent practice and advocacy for normative actions that promote social values through engaging the employees in communication, teamwork, and decision-making. Top on the list are the decision makers who always strive to make well-informed and timely decisions about matters pertaining to the organization. This group of ethical leaders plays a strategic and proactive role within the organization (Ferrell, Fraedrich & Ferrell, 2011). There are the public relati ons leaders whose main role in the ethical sense is to ensure good and effective communication with all the stakeholders within the company. Since communication is important in solving problems, these leaders can also play a role in conflict resolution. In addition, the mentors play a major role in motivating their junior within the organization by organizing such initiatives as the corporate social responsibility (Ferrell, Fraedrich & Ferrell, 2011).   Illustration of the relations between ethical leaders and stakeholders According to Ferrell, Fraedrich, and Ferrell (2011), stakeholders contribute to, depend on, involve in, or feel the effect of the organizations activities and therefore their interests should form part of the organization’s agenda. These include the shareholders, customers, investors, and partners, whose needs, interests, and preferences can seem farfetched but in the end determines the culture exhibited by the concerned organization. Since both direct an d indirect stakeholders affect the organizations culture, all the ethical leaders within the company normally exhibit cordial relationship with all the stakeholders irrespective of the background in terms of contribution, geographic location, and size. This way, virtually every stakeholder will get higher percentage

CROSS CULTURAL NEGOTIATION MGT Essay Example | Topics and Well Written Essays - 2000 words

CROSS CULTURAL NEGOTIATION MGT - Essay Example Against this backdrop, common understanding is not only limited to what the members achieve or share in common but what they can be as a single entity (Spoelstra and Pienaar, 1999). Exchanging information through communication is an integral part of the negotiation process and this information is generated through different methods. The nature of methods used in exchanging information in the negotiation process depends on the relationship of the negotiating parties where in some cases this relationship can be terminated where consensus is not reached or prolonged when it has been reached (Reardon, 2004). In order to test the concept of negotiation, simulations that were conducted between week seven and eleven focused on three main areas highlighted below. The Him and Her Australia (HHA) is one of the key focus area. HHA is regarded as an upmarket store specialising in retailing fashion clothes in Australia and is comprised of a prestigious network of about 80 chain stores. The company worked together with another Italian designer shop where the young crop designers from Sydney have managed to add some flavour and HHA has emerged as a force to reckon with as this has greatly contributed to its success. HHA has also underscored to collaborate with Beijing Fashion Manufacturing (BFM) where the companies have seen a reduction of production costs which in turn has lowered the prices while at the same time increasing the profit margins. In order to investigate if a common ground can be reached between HHA and BFM to establish a platform where they can share similar agreement in the process of manufacturing clothes for summer clothes for the 2009 and 2010 seasons, a simulated e-mail negotiation was conducted between HHA and BFM. The participants mainly comprising students were grouped into eight different categories and the groups were split into two parts where the other group represented

Does post-development represent the end of development or a new way of Essay

Does post-development represent the end of development or a new way of thinking about how development should be promotedExplain - Essay Example It would give an illustration as to how alternative techniques should be designed to overcome any problem which may occur during the development process. At the end of the 1980s, there was and still is little proof that the ever-present Structural Adjustment Programs (SAPs) had motivated any development, or shaped circumstances helpful to growth. In these situations it was barely astonishing that a lot of individuals involved in development started to sense that the previous theories had unsuccessful (a remarkable exception incorporated those practitioners and intellectuals who were linked with the Washington, and other support organizations, that had prepared a considerable intellectual and economic investment in such plans as SAPs). The query was where to go from that place. Such was the character of the ‘impasse’. In the deficiency of any reliable hypothetical foundation many theorists have sought a trail through the impasse by reference to the body of premise usually known as ‘post-modernism’, or post-structuralism. History is analyzed merely as a reliant series of events. Post-modernists would also be likely to condemn what is frequently observed as an unusually modernist trust in the talent of human race to advance their situation through science, generally visualized as the capability to form and shape their world through the use of technology and such processes as balanced techniques of planning. This is not to declare that post-modernists quarrel that technology and planning never end in the most wanted, or at least useful results, although some approach quite near to such a point at times (e.g. Paul Feyerabendon science). However, they are generally doubtful of the capability of planners and social engineers to attain their apparently benevolent objectives for society (and this is to close the eyes to the chance that they may state such benign goals as a coat for less generally

Extinction of a Conditioned Stimulus Essay Example for Free

Extinction of a Conditioned Stimulus Essay Method: In this experiment, an untrained rat was utilized in order to display the Movement Ratio. 1 stage was selected with ten (10) trials. Each trial had a five (5) minute interval between trials to allow the rat to recover from the medium intensity shock. A medium intensity tone was selected as the Conditioned Stimulus (CS) selected to precede the Unconditioned Stimulus (US), a medium intensity shock. Stage 2 was selected with thirty (30) trials. Each had a five (5) minute interval between trials to allow the rat to recover from the medium intensity shock. A medium intensity tone was selected as the Conditioned Stimulus (CS) to precede the new Unconditioned Stimulus (US), no stimulus. Hypothesis: In the first set of trials, Sniffy will learn to associate the tone with shock; illustrating fear-related behavior or freezing behavior at the tone. In the second set of trials, stage 2, elimination of a conditioned response (CR) (freezing or fear-related behavior) learned in the first set of trials will occur by repeatedly presenting the CS without the US. Results: In the first set of trials; the increase from 0 to 0.7 in the Movement Ratio illustrates that the tone CS, is acquiring the capacity to induce freezing behavior and other fear-related behaviors. As the movement ratio increases, the CS response strength mind window show that the tone’s capacity to elicit fear as a psychological process is increasing. In the second set of trials; the movement ratio window illustrates that repeatedly presenting the CS without the US causes the CS to gradually stop eliciting the freezing and other fear-related behavior. The CS Response Strength mind window shows that this behaviors change is the result of the CS’s losing its capacity to elicit the fear response. Independent Variable (IV) – first trial = shock; second trail = none Dependent variable (DV) – first and second; fear-related behavior, freezing behavior The movement ratio is the proportion of time during each CS presentation that Sniffy is frozen or manifesting other fear-related behaviors.

Causes of Asthma

Causes of Asthma Asthma is a chronic lung disease that inflames and narrows the airways. It can be both short term and long term. Asthma causes recurring periods of wheezing (a whistling sound when you breathe), chest tightness, shortness of breath, andcoughing. The coughing often occurs at night or early in the morning. Asthma affects people of all ages, but it most often starts during childhood. In the United States, more than 25 million people are known to have asthma. About 7million of these people are children. The airways are tubes that carry air into and out of your lungs. People who have asthma have inflamed airways. The inflammation makes the airways swollen and very sensitive, the airways tend to react strongly to certain inhaled substance. When the airways react, the muscles around them tighten. This narrows the airways, causing less air to flow into the lungs. The swelling also can worsen, making the airways even narrower. Cells in the airways might make more mucus than usual. Mucus is a sticky, thick liquid that can further narrow the airways. This chain reaction can result in asthma symptoms. Symptoms can happen each time the airways are inflamed (national institute of health). Understanding and Explaining Asthma The aetiology of asthma has been explained in terms of heredity, incitement, and induction. Incitement is the immediate broncho-constriction noted among asthmatics and others to nonspecific stimuli. Induction is the enhancement of the response to inciters that can follow exposure to certain stimuli, mostly inflammatory agents such as allergens, infections and other irritants, including industrial contaminants such as`4he plicatic acid from Western Red Cedar wood. There is a good reason to believe in a hereditary component to asthma, different components of the condition having possibly independent genetic origins. The best documented genetic component is the familial allergy to ragweed6, and Sibbald et al.7 have argued for independent hereditary components that influence atopy and bronchial responsiveness. However, migrant studies strongly suggest the major determinant to be environmental and not genetic. Both Tokeluans4 and Xhosas3 clearly have the genetic potential for developing a sthma, but this is expressed only on migrating to an economically more developed area (Journal of the Royal Society of Medicine Volume 80 June 1987 367). Isolated examples, such as the increase in asthmatics attending emergency rooms following the eruption of the Mount Helens volcano8, may be explained in terms of incitement, but there are major objections to using this mechanism as a general explanation for differences in the prevalence of asthma. The wide variety of substances capable of inducing broncho constriction in asthmatic subjects can be divided into endogenous mediators such as histamine, prostaglandins or leukotrienes, and exogenous agents such as sulphur dioxide, volcanic ash or cold dry air. For the epidemiologist attempting to explain the prevalence of asthma, the endogenous mediators are unhelpful. The discovery of a mediator whose presence distinguishes asthmatic from non asthmatic populations would be useful, but in turn would raise the question of why one population had more of the mediator than the other population. For the reason discussed above, a genetically controlled explanation can be discounted, which leaves an environmental factor to increase the amount of mediator in the asthmatic population. This is essentially the same as the initial question of what environmental factor might account for differences in the prevalence of asthma. Exogenous inciters, being environmental in origin, theoretically offer a better hope of advancing the issue further, but, in the event, are no more helpful. Differences in the prevalence of asthma are not accounted for simply by differences in the incidence of clinical symptoms provoked by environmental triggers. They also reflect differences in the under-lying prevalence of bronchial hyper-responsiveness. In van Niekerks study3, it was the response to the exercise challenge that differed between urban and rural areas. This cannot be explained simply in terms of the prevalence of inciters in the environment. Induction provides a more promising general theory with which to explain differences in prevalence. There is plenty of evidence that induction does occur, particularly in an industrial context and this has been used extensively as a general model for the aetiology of asthma. It does not, however, explain the distribution of asthma in developing countries. Agents that have been sh own to induce asthma are abundant in the Third World ( Journal of the Royal Society of Medicine Volume 80 June 1987 367). Fatality of Asthma Acute respiratory infections are probably the single most important cause of death among children. It is thus appealing to consider the hypothesis that fatal and near fatal attacks of asthma may have common causes, and that studying non-fatal asthma attacks (as well as being of value in itself) may provide useful information on the factors associated with fatal asthma attacks. Campbell investigated the levels of agreement between information obtained directly from cases of near fatal asthma attacks with those obtained independently from close acquaintances, almost all of whom were family members living in the same household. They found very high levels of agreement for recognized markers of chronic asthma severity (such as a hospital admission in the last 12 months or an intensive care unit admission), utilization of medical services, the use of prescribed agonists (although there was less agreement for other asthma medications such as oral xanthines), and psychiatric features. These findings are generally encouraging in that they indicate that information relating to these risk factors and clinical characteristics obtained from close acquaintances has reasonable reliability in studies of near fatal asthma attacks and therefore such information may also be reliable for persons dying from asthma. In contrast, information on features of the long term asthma history such as sleep disturbance and the frequency of, or trends in, symptoms in previous years was not reliable. The reliability of the reported circumstances associated with a near fatal episode was not examined. Thus, while it would seem appropriate to continue to examine deaths from asthma using clinical information that has been recorded before the fatal attack, the findings of Campbell suggests that interviews with acquaintances may provide additional useful data. Richards have compared the demographic characteristics of patients suffering fatal asthma attacks throughout New Zealand during 1980-6 with t hose experiencing severe life threatening asthma attacks in the Auckland region during 1981-7. The information avail-able for the study was limited, but the findings once again confirm the importance of a previous life threatening attack of asthma as a marker of subsequent risk of death from asthma. About one quarter of the subjects who died in Auckland during the period of the study had a previous admission to an intensive care unit with asthma. This suggests that asthmatic subjects who experience a life threatening attack are a group in whom intensive medical treatment and follow up should be arranged. These considerations indicate that, although there are some practical advantages in studying near fatal asthma attacks, there may well be greater problems of interpretation of the findings than in studies of fatal asthma. Nevertheless, when interpreted cautiously, studies of near fatal attacks may provide a useful complement to studies of fatal attacks in monitoring the time trends in severe asthma, and in identifying the causes of those changes which occur (Thorax 1993;48:1093-1094).

Affirmative Action needs to be Changed not Ended Essay -- Affirmative

Affirmative action: Should it be mended or ended? Affirmative action is an attempt to correct unequal distribution of benefits (status, income and wealth, power and authority), and burdens associated with ethnic and gender differences. Affirmative action has been promoted by the Federal government since the mid 1960's, when president Lyndon B. Johnson ordered federal contractors to adopt affirmative action plans. (Congress and the Nation, 748). This paper will focus on the relevance of affirmative action in the American society. It is important to acknowledge the truth of affirmative action's main claim: historically, African Americans and women have been victims of discrimination. Theoretically speaking, African Americans enjoy the same citizenship rights and protections as white Americans. While ground has been gained, the reality is that discrimination and racism are still very much a part of American culture and institutional practice. For instance, during the 19th century, women were barred from many professions like doctor, lawyer, etc. Predominantly, these positions were for white males. Women were in a crucial position because upon marriage, they often lost title to whatever pittance they were allowed to earn! (McElroy, 1 of 2). We must remember that affirmative action was established to address the continuing, real problems of discrimination. Minorities and women remain economically disadvantaged. The black unemployment rate for instance remains more than twice the white unemployment rate (Do Racial preferences count, 1 of 2). In the United states, affirmative action has been a hot debate for quite a while. There have been both positive and negative thoughts concerning affirmative action in the American society.... ...nthropoloty Newsletter. Sept. 1998: 3. * Anderson, N. Charles. "Do Racial Preferences Help?: Affirmative Action Rights wrongs, Aids Economy." Detroit News. 25 Jan. 1998: 4-5B. * O'Connor, Preimesberger, & Tarr (eds.). Congress and the Nation: A Review of Government and Politics. Vol. IX, 1993-1996. Washington DC: Congressional Quarterly Inc. 1998. * De Han, Martin. Negative Aspects of Affirmative Action. October 1999. http://www.sru.edu/depts/cisba/comm/awalters/smgr/marteen/maxhpneg.htm. * Singer, Peter. Practical Ethics 2nd edition. New York: Cambridge University Press. 1993. * The Civil Rights Project. Harvard University. October 1999. http://www.law.harvard.edu/groups/civilrights/publications/index.html. * McElroy, Wendy. What Does Affirmative Action Affirm? October 1999. http://www.zetetics.com/mac/affirm.htm. Affirmative Action needs to be Changed not Ended Essay -- Affirmative Affirmative action: Should it be mended or ended? Affirmative action is an attempt to correct unequal distribution of benefits (status, income and wealth, power and authority), and burdens associated with ethnic and gender differences. Affirmative action has been promoted by the Federal government since the mid 1960's, when president Lyndon B. Johnson ordered federal contractors to adopt affirmative action plans. (Congress and the Nation, 748). This paper will focus on the relevance of affirmative action in the American society. It is important to acknowledge the truth of affirmative action's main claim: historically, African Americans and women have been victims of discrimination. Theoretically speaking, African Americans enjoy the same citizenship rights and protections as white Americans. While ground has been gained, the reality is that discrimination and racism are still very much a part of American culture and institutional practice. For instance, during the 19th century, women were barred from many professions like doctor, lawyer, etc. Predominantly, these positions were for white males. Women were in a crucial position because upon marriage, they often lost title to whatever pittance they were allowed to earn! (McElroy, 1 of 2). We must remember that affirmative action was established to address the continuing, real problems of discrimination. Minorities and women remain economically disadvantaged. The black unemployment rate for instance remains more than twice the white unemployment rate (Do Racial preferences count, 1 of 2). In the United states, affirmative action has been a hot debate for quite a while. There have been both positive and negative thoughts concerning affirmative action in the American society.... ...nthropoloty Newsletter. Sept. 1998: 3. * Anderson, N. Charles. "Do Racial Preferences Help?: Affirmative Action Rights wrongs, Aids Economy." Detroit News. 25 Jan. 1998: 4-5B. * O'Connor, Preimesberger, & Tarr (eds.). Congress and the Nation: A Review of Government and Politics. Vol. IX, 1993-1996. Washington DC: Congressional Quarterly Inc. 1998. * De Han, Martin. Negative Aspects of Affirmative Action. October 1999. http://www.sru.edu/depts/cisba/comm/awalters/smgr/marteen/maxhpneg.htm. * Singer, Peter. Practical Ethics 2nd edition. New York: Cambridge University Press. 1993. * The Civil Rights Project. Harvard University. October 1999. http://www.law.harvard.edu/groups/civilrights/publications/index.html. * McElroy, Wendy. What Does Affirmative Action Affirm? October 1999. http://www.zetetics.com/mac/affirm.htm.

Nike Case Study Essay

Kimi Ford, a portfolio manager at North Point Group, is looking into the profitability of investing in the stocks of Nike for her fund that she manages. She is supposed to base her decision the company’s data which was disclosed in the 2001 fiscal reports. While Nike management had addressed several issues that are causing the decrease in market sales and stock price, management presented plans to improve and perform better. Nike revenue has been at a plateau since 1997 yet net income and market share were falling. Supply chain issues and the strong dollar negatively affected revenue too. Plans are in place to address top line growth and operating performance. To boost revenue, the company would develop more athletic shoes in the mid priced segment which has been overlooked by Nike in recent years. They also planned to push their apparel line which under strong leadership had performed very well to control expenses. Revenue growth targets are around 8-10% and earnings targets are above 15%. Analyst reactions were mixed as some of them thought this was too aggressive. Lehman Brothers recommended a strong buy while others expressed misgivings and recommended a hold. At this point, North Point Group decided to do their own analysis in order to decide if Nike shares should be purchased for the fund. The weighted average cost of capital (WACC) is the rate that a company is expected to pay its debt and equity holders to finance its assets. It is the minimum return that a company must earn on existing asset base to satisfy its owners, creditors, and other providers of capital or they will invest somewhere else. Companies raise money from many sources such as common and preferred equity, straight, convertible, and exchangeable debt, options, warrants, pension liabilities, executive stock options, governmental subsidies, and others. Different securities, which represent different sources of finance, are expected to generate different returns. WACC is calculated taking into account the relative weights of each component of the capital structure- equity and debt, and is used to see if the investment is worthwhile to take part in. Management notices the cost of capital while making a financial decision. The concept is very relevant in the following managerial decisions and hence its importance: (1) Capital Budgeting Decision. Cost of capital may be used as the tool for adopting an investment proposal. Naturally, the firm will choose the project which gives a satisfactory return on investment which would never be less than the cost of capital incurred for its financing. In the many methods of capital budgeting, the cost of capital is the main factor in deciding the project out of different proposals pending before the management. It determines the acceptability of all investment opportunities by measuring financial performance. (2) Designing the Corporate Financial Structure. The cost of capital is a significant factor in designing the firm’s capital structure. The cost of capital is influenced by changes in capital structure. Financial executives keep an eye on capital market fluctuations and try to achieve the economical and sound capital structure for the firm. They may try to substitute the various methods of finance in an attempt to minimize the cost of capital a nd to increase the market price and the earning per share. (3) Deciding about the Method of Financing. Financial executives must have knowledge of fluctuations in the capital market and should analyze the rate of interest on loans and normal dividend rates in the market from time to time. Whenever company requires additional finance there are better choices of the source of finance which bears the minimum cost of capital. Although cost of capital is an important factor in such decisions, but equally important are the considerations of relating control and of avoiding risk. (4) Performance of Top Management. The cost of capital can be used to evaluate top executive financial performance. Evaluation of the financial performance will involve a comparison of actual profitability’s of the projects and along with the projected overall cost of capital and an appraisal of the actual cost incurred in raising the required funds. (5) Other Areas. The concept of cost of capital is also important in others areas of decision making, such as dividen d decisions, working capital policy, and more. WACC CALCULATION: [pic] One important question is if Joanna Cohen should use a single or multiple of capital for each of Nike’s footwear and apparel divisions? We agree with the use of single cost rather than multiple costs of capital. The reason of estimating WACC is to value the cash flows of the entire company that is provided by Kimi Ford. Plus, Nike business segments have a similar risk and thus a single cost is sufficient for this analysis. Joanna Cohen’s cost of debt was incorrect. An important fact is the WACC is used for discounting future cash flows, thus all components of the cost must reflect the firm’s concurrent or future abilities in raising capital. Cohen wrongly used the historical data in estimating the cost of debt. She divided interest expense by the average balance of debt to get 4.3% of before tax cost of debt. It doesn’t reflect Nike’s current or future cost of debt. The correct way to calculate the cost of debt is explained below. If the cost of debt is intended to be forward looking, it can be estimated by the yield to maturity of bond. The more appropriate cost of debt can be calculated with the data provided in Exhibit 4 of the case. Market data is correctly used rather than historical data. PV: 95.60 N= 40 Pmt: -3.375 FV: -100 The values above were put into Excel’s rate function. This came to a 7.16% annual cost of debt. The tax rate is 38%. The correct way to get the after tax cost of debt is to take 7.16% * (1-38%) = 4.44% The correctly calculated before tax cost of debt is 7.16%. This is significantly higher than Joanna’s incorrectly calculated cost of debt of 4.3%. Her incorrect calculation came from using historical rates rather than market rates. Next, the cost of equity is calculated. It is a good idea to use the 20 year T-Bond rate to represent the risk free rate. The cost of equity and the WACC are used to discount cash flows in the long run, thus rate of return of a T-Bond with 20 years maturity at 5.74% is the longest rate that is available. The geometric mean of market risk premium is 5.9%. This is more accurate than using arithmetic mean to represent market risk premium. By using arithmetic mean to represent true market risk premium, we have to have independently distributed market risk premium. It is often found that market risk premiums are negatively serial correlated. Market average Beta of .69 is used because it is a good indicator of the average Beta’s and their fluctuations throughout the years. Capital Asset Pricing Model (CAPM) |Cost of Equity(KE) | |KE = |Rf + ÃŽ ²(Rf – Rm) | |Rf = |5.74% | = |9.81% | |Beta |= 0.69 |Average Nike Beta | | Next, the weights of debt and equity need to be calculated. The market value of equity is $42.09 share price X 271.5 million shares = 11,427,000 Due to the lack of information of the market value of debt, book value of debt at 1296.6 million is used to calculate weights. Calculations for market and debt weights: 11,427,000 / (11,427,000 + 1297) = 89.8% Equity Weight 1 – 89.8% = 10.2% debt weight WACC Calculation 4.44% After Tax Cost of Debt X 10.2% Debt Weight + 9.81% Cost of Equity X 89.8% Equity Weight = 9.27% The CAPM method was used when calculating cost of equity for the WACC. Advantages and disadvantages of this method are explained below. Advantages: †¢ It only considers systematic risk, reflecting a reality in which most investors have diversified portfolios from which unsystematic risk has been essentially eliminated. †¢ It generates a theoretically-derived relationship between required return and systematic risk which has been subject to constant empirical research and testing. †¢ It is generally seen as a superior method of calculating the cost of equity than the dividend growth model (DGM) in that it explicitly takes into account a company’s level of systematic risk relative to the stock market as a whole. †¢ It is clearly better than WACC in providing discount rates for use in investment appraisal. Disadvantages: †¢ It is practically impossible to estimate betas for many projects. †¢ People sometimes focus on market risk rather than corporate risk, and this may be a mistake. The Dividend Discount Method is another method of calculating cost of equity. The assumption made with this model is that the company pays a substantial dividend, but Nike Inc. does not pay dividends. Therefore, we rejected this model since it does not reflect the true cost of capital. The method Compares dividends forecasted for the next period with the current share price for the firm and then adds the growth rate of the firm. Equation: Ke= D1/ P0 + g †¢ Variables: – G= the value line forecast of dividend growth, which equals 5.5% – PO= current share price, which is $42.09. – D1= DO (1+g), which equal .48 (1+.055) †¢ DO= from dividend history and forecast chart, which equals .48 Therefore, cost of equity = .564/42.09 + .055= 6.7% Advantages: †¢ Allow great flexibility when estimating future dividend streams †¢ Provide useful value approximations even when the inputs are simplified †¢ Can be reversed so the current stock price is used to impute market assumptions for growth and expected return †¢ Investors are able to suit their model to their expectations rather than force assumptions into the model †¢ Specifying the underlying assumptions allows for sensitivity testing and analyzing market reactions to ever changing circumstances Disadvantages †¢ Subjective inputs can result in wrongly specified models and bad results †¢ Over-reliance on a valuation that is really just an estimate †¢ Sensitivity is high to small changes in input assumptions †¢ Flow-through of minor formula or data entry errors when using spreadsheets The Cost of Equity Method is the other method for forecasting cost of equity. The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the company’s growth. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way: †¢ Stands for earnings capitalization model †¢ This model compares forecasted earnings for the next period over the current share price. †¢ Equation: – Ke: E1/ P0 †¢ Variables: – E1= (1+g) * (E0/ # of shares outstanding) †¢ G= retention ratio * return on equity †¢ Retention ratio= retained earnings/ net income †¢ 3194.3/ 589.7= 5.42 †¢ Return on equity= net income/ total shareholders’ equity †¢ 589.7/ 3494.5= 16.88% †¢ G= 5.42* 16.88%= .914 †¢ EO= Net Income, which equals 589.7 †¢ Share Outstanding= 271.5 – E1= ((1+.914) * 589.7)/ 271.5= 4.1572 – PO= Nike current share price, which is 42.09 †¢ Therefore, cost of equity= – 4.1572/ 42.09 = 9.88% Advantage Strong representation of earnings Disadvantages Brealey & Myers argue in Principles of Corporate Finance that this model is not good to use for growing firms but is appropriate for no-growth firms. Hence it is not appropriate for Nike Inc. since this company is still growing. Analysis and Recommendation Kimi ford used a WACC discount rate of 8.4% to find a share price of $63.50. Nike is currently trading at $42.09. This makes the share price undervalued by $21.41. However, her discount rate does not reflect true market value due to the mistakes in her methods we discussed earlier. The discount rate we came up with from using the CAPM was 9.27%. This higher WACC results in a lower share price of around $55.60. Share price has decreased once Joanna’s calculation methods have been corrected, but Nike is still overvalued so we still recommend buying the stock. Share price is now undervalued by $12.97. SWOT Analysis Strengths: †¢ Globally recognized #1 sports brand †¢ Strong marketing, research and development, and innovation †¢ Worldwide logo recognition, brand loyalty, and slogan â€Å"Just do it.† Weaknesses: †¢ Most profits are solely from footwear †¢ Revenue has plateaued, expenses have increased †¢ Supply chain issues affecting financial health too †¢ Price sensitive retail industry Opportunities: †¢ There are plans in place to address top line growth and operating performance †¢ Plans to create more athletic footwear †¢ Also plans to push apparel line †¢ High revenue growth (8-10%) and earning (15%) targets Threats: †¢ Uncertainties in international trade †¢ The market is cut throat †¢ Growing competition from other companies can lead to decreased market share DuPont Analysis †¢ Net Income: 589,700,000 †¢ Sales:9,488,800 †¢ Total Assets:5,819,600 †¢ Common Equity – Common Stock, Par: 2,800,000 – Capital in excess of stated value: 459,400,000 – Retained Earnings: 3,194,300,000 – Total: 3,656,500,000 †¢ NI/Sales: 589,700,000/9,488,800,000 = 6.2% †¢ Sales/TA: 9,488,800,000/5,819,600,000 = 1.63 †¢ TA/CE: 9,488,800,000/3,656,500,000 = 2.60 †¢ Profit Margin * TA Turnover * Equity Multiplier †¢ 6.2% * 1.63 * 2.60 = 26.27% ROE. This Return on Equity is high, further stating the fact that Nike stock is good to buy. Nike has strong financial health and its stock is a sound investment. It would make a valuable addition to any mutual fund. The End Thank You