Nike Inc.: Cost of Capital

NIKE, INC.: COST OF CAPITAL

On July 5, 2001, Kimi Ford, a portfolio manager at NorthPoint Group, a mutual-fund management firm, pored over analysts’ write-ups of Nike, Inc., the athletic-shoe manufacturer. Nike’s share price had declined significantly from the beginning of the year. Ford was considering buying some shares for the fund she managed, the NorthPoint Large-Cap Fund, which invested mostly in Fortune 500 companies, with an emphasis on value investing. Its top holdings included ExxonMobil, General Motors, McDonald’s, 3M, and other large-cap, generally old-economy stocks. While the stock market had declined over the last 18 months, the NorthPoint Large-Cap Fund had performed extremely well. In 2000, the fund earned a return of

20.7%, even as the S&P 500 fell 10.1%. At the end of June 2001, the fund’s year-to-date returns stood at 6.4% versus −7.3% for the S&P 500.

Only a week earlier, on June 28, 2001, Nike had held an analysts’ meeting to disclose its fiscal-year