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Share price Essay Topics & Paper Examples

Cost of Capital

1. WACC is used for discounting cash flows in the future, thus all the modules of cost must reflect firm’s future abilities in raising capital. Cohen made the mistake of using the historical data in estimating the cost of debt yet the share price has changed considerably over time. The market value of equity should be used instead of book value. 2. Cohen calculates the cost of debt by taking total interest expense for the year 2001 and dividing it by the company’s average debt balance. This is an estimate of the true cost of debt, but is inaccurate and may not reflect Nike’s current or future cost of debt. 3. Cohen obtained the corporate tax rate of 38% which…