Development of a Business Plan to Establish a Private Jet Charter Essay

Development of a Business Plan to Establish a Private Jet Charter - Essay Example The adoption of the hub and spoke system by commercial airlines requires most passengers to transit through one of some 70 large airports, adding to the total travel time for most passengers. Most major airline hubs are large and have air traffic congestion and connection times of over 2 hours are needed to provide for potential delays in the incoming flight and the transfer time including additional security screening. An additional issue with the hub and spoke system is the increased probability of mishandled baggage. Due to restrictions on the nature of carry-on bags, many business travelers need to check in tools, instruments and such material and if these do not make the transfer, the business trip itself may become abortive (Copley, 2012). There are over 5000 public use airports in the US that can be accessed by private air charter planes. The reduced travel time due to point-to-point connection, the convenience of flexible departure and turnaround times, the possibility of using flying time for work and the reducing cost differential between commercial plane tickets and air charter rates ( especially when a team of people are travelling together) is driving the growth of the air charter industry. There are over 2,000 registered private air charter companies in the US operating over 15,000 business aircraft with total revenues of over $ 12 billion a year. The overwhelming majority of these planes seat 4 to 8 passengers and have a maximum range of 1,000 miles. Private air charter companies transport between 1 and 1.5 million a year and these aircraft log over 18 billion revenue passenger miles. Contrary to the general impression, only some 3% of these are owned by large corporations (NBAA Fact Book, 2012). Most business aircraft are operated by small entrepreneurs and are typically operations with 1 -2 aircraft. The

Supply and Production Essay Example | Topics and Well Written Essays - 500 words

Supply and Production - Essay Example One of the most important advantages is that the implementation of the supply chain management makes it possible to reduce the inventory days of supply by half and introduce the order-cycle time more efficiently. It means that the products are delivered much faster and the delays happen much rarely compared with the traditional competitive processes. Using supply chain management every party involved has an important role and the whole structure works as one unit - there is no division among departments. Finally, supply chain management is an effective cost reduction tool - there is not need to rent or build huge warehouses because the inventory is not getting piled up. One of the most obvious disadvantages of supply chain management is its unity and connectivity. For example, if one chain of the system fails the whole process will fail as well. If one of the suppliers is unable to meet the delivery time, the next unit will not be able to move forwards. Therefore, the company has to ensure that every level operates but still have alternative supplier in case one of the levels does not work out.

Challenges of the Native American Essay Example for Free

Challenges of the Native American Essay Native American culture is in its downfall, due to the discrimination and dehumanization that Native Americans have faced. Native American culture revolves around a circle. They believe the most important aspects of life such as nature is based on circles. The repetition of life and death, their own families, and even the food chain are all examples of circles. These circles have been shattered by the discrepancies from white men in particular. Being kicked off their land and forced into reservations, Carlisle Schools, and substance abuse have broken the Native American circle. Authors like Sherman Alexie have displayed examples of these broken circles. His work has made our society aware of the discrimination the Native American culture has endured. Settlers viewed themselves as above the Native Americans resulting in conflicts between the two. These conflicts escalated, and the white settlers viewed Native Americans as a threat to the country. The U. S. government forced Native Americans onto land that was viewed unimportant, or of no value at all. This has broken their circle by forcing them away from their homeland and they had to restart their lives in a new land. This was the beginning of the downfall for the Native American culture and its circle. Schools were specifically designed to tear apart the Native American circle. The Carlisle School was founded by Richard Pratt in 1892 (Pavelic, Perelshstein 1). The school†s main goal was to convert young Native Americans to American lifestyle and culture. The school stripped Native American childrens culture away from them by converting them to Christianity, and forcing them to never use their native language (Pavelic, Perelshstein 1). By tearing the Native American culture out of the children, the culture is unable to pass on through them hence destroying the circle by not allowing their culture to be taught to future generations. After the discrimination and dehumanization from being kicked off their land and being forced into American culture, many Native Americans also began self-destructing due to substance abuse. Native Americans have the highest rate of substance abuse above any other race in the U. S. (Meir 1). These substances include alcohol, and harsher drugs such as methamphetamine. Substance abuse breaks the family circle because it leads to physical abuse, or abandoning of families displayed in the movie Smoke Signals. Many Native Americans use alcohol as a coping mechanism to deal with all the pain they have to face. The abuse of alcohol shows the lack of hope, and shows them surrendering to the discrimination thus surrendering their dreams. By giving up on what they have wanted they fracture the circle of hope and happiness. Hope and happiness are two very important circles because they give people fuel to do great things. When one person is happy and has hope it will be contagious giving people joy. Without this circle the world would be a very tedious and weary place. Authors have made attempts to restore Native American culture and the broken circles. The book Absolutely True Diary of a Part-Time Indian by Sherman Alexie is novel about hope. Arnold Spirit who lives on a impoverished Native American reservation is the main character in the novel. He is bullied and physically beaten on a day to day basis and almost every adult on the reservation is an alcoholic including his parents. Arnold does not give up, he sees an opportunity to be uplifted from all of the hardships and he takes it. Sherman Alexie shows that hope, and willpower is what is needed in order to restore the circle. Sherman Alexie also wrote the screenplay to the movie called, Smoke Signals. This movie revolves around the fight of normal Native Americans to rise above stereotypes. Thomas-Builds-the-Fire and Victor Joseph are the main characters who set off to obtain Victors Dads ashes who abandoned Victor when he was young. Their problem is that it is hard to discover who they really are because of all the stereotypes that tear them apart. Victor asks Thomas how many times he had seen Dances with Wolves. A hundred, two hundred times? Oh, jeez, you have seen it that many times, havent you? Man, do you think that shit is real? God. Dont you even know how to be a real Indian? Thomas responded saying, I guess not. Victor then went on to tell Thomas to look more stoic and not to smile like an idiot. This scene is an example of how Victor rejects stereotypes, yet embraces them. He does not know who he is, if he is like a stoic Native American, or if he is just like everyone else in the world. In the end, Thomas and Victor manage to discover themselves and to surpass their confusion regarding their identity induced by the stereotypical image others have of them. Thomas helps Victor by showing him not all people are bad and untrustworthy. Thomas teaches Victor to forgive and forget which helps Victor forgive his father. Thomas would tell Victor good stories about how great his dad was which leads to Victor cutting off his hair because he is ashamed of how he felt towards his father. Cutting off ones hair was a Native American ceremony used to show regret. Sherman Alexie has impacted the Native American culture with his award winning book Absolutely True Diary of a Part-Time Indian, and his screenplay for the movie Smoke Signals. He has impacted their culture by showing the world examples of broken circles and has given hope to the Native Americans. The Native Americans circle has been broken by stereotypes, dehumanization, and discrimination of the past and the present. Each has torn apart the Native American culture leaving a permanent mark. Most Native Americans have no hope regarding any change to their broken culture. The high rate of substance abuse among Native Americans shows the lack of hope, and the acceptance of such a broken culture. Those who seek hope such as Sherman Alexie, have been successful. He displays his hope in the novel, The Absolutely True Diary of a Part-Time Indian, and in the movie, Smoke Signals. Ultimately, hope is the key that unlocks the broken circles that Native Americans have been overtaken by.

The Reciprocating Pump Engineering Essay

The Reciprocating Pump Engineering Essay A pump is a mechanical device which helps to move fluids including liquids or gases. It is basically a hydraulic machine which converts the mechanical energy to the hydraulic energy. The hydraulic energy is been present in form of the pressure energy. There are various types of pumps such as positive displacement pumps, velocity pumps, Buoyancy pumps, Impulse pumps. The various different pumps are also been sub-classified in various other pumps. Positive Displacement pumps are one of the most commonly used pumps. They are sub-divided in to Reciprocating and Rotary pumps. Typical types of the Reciprocating pumps are Plunger pumps and Diaphragm Pumps. The Plunger pump is also known as Piston Pumps. The Reciprocating Pumps are highly efficient pumps which are even suitable for the very high heads at low flows. It is a self priming type of pump as it can draw the fluid from the level below the suction flange if the suction pipe is not evacuated. There should be a smooth flow required for achieving a good efficiency (Chinnuraj, 2009). The complete system is based on the design of the pump. The head of cylinder is been mounted with suction and discharge valves. The fluid enters the pump through the suction valve and goes out threw the discharge valve. In suction stroke, suction valve opens when the plunger retracts. The liquid gets pushes out of the discharge valve in the forward stroke. Reciprocating system has a pulsating discharge and it totally depend on the speed of the pump which can be easily altered. The intake of the fluid in the pump is always at a constant volume. They are often used for slurry and sludge. There are various different designs from rest of the pumps. The design containing single-acting motion discharges fluid from only one side of the piston. There is only one suction and discharge per revolution of the crank shaft. The other design is the double-acting piston design where the suction and the discharge occurs on the either side of the piston resulting in double suction and double discharge per revolution of crack shaft. Classification of PD Pump Positive Displacement pump are been classified as follows: Positive Displacement Pump Rotary Pump Single Rotor -Vane -Piston -Flexible -Member Screw -Simplex -Duplex -Triplex -Multiplex -Simplex -Duplex Double Acting Single Acting Diaphragm Piston Plunger Reciprocating Pump Simplex Multiplex Multi Rotor -Gear Lobe Circumferential Piston -Screw (Gates, 2010) Working Principle of Reciprocating Pump The working principle of the Reciprocating pump is very simple; it operates on the principle that a volume of liquid would be displaced by solid equal to its own volume. The mechanical energy is been converted in to the pressure energy and takes place due to the suction of the liquid into the cylinder in which the piston is having a reciprocating motion (linear motion-threw and fore). This exerts the thrust on the fluid and hydraulic energy gets increased gradually. In single acting reciprocating pumps, a single piston moves forward and backward in a closed tight cylinder. The linear motion of the piston in the cylinder is been given by connecting piston to the crank with the help of a connecting rod. An electric motor is been used to give motion to the crank and the rotary motion is been converted to the linear motion by the help of the connecting rod. The working principle is somewhat similar to the car engines where the piston has the same movement threw some similar kind of motio ns. In Reciprocating Pump, the suction valve allows the fluid to enter where as the discharge valve tends to discharge it from the cylinder (Chinnuraj, 2009). http://www.lcresources.com/resources/getstart/pump.gif Fig 01: Working Principle of Reciprocating Pump (Getting Started in HPLC, 2001) Types of Reciprocating Pumps The Reciprocating Pumps are usually classified as follows: Direct or Indirect acting Simplex (single) or duplex (double) Single   acting   or   double   acting High pressure or low pressure The direct acting pumps are one of the most common type of pump been used. It is been known so as in the particular design the pump rod is a direct extension of the piston rod in which the lower end is been directly connected to the piston in the cylinder. Single and Double action pumps is as mentioned earlier. Single action has a single suction and a single discharge per revolution and Double action pump has two suctions and discharges per revolution. Applications Reciprocating Pumps have a very large contribution to the society with plenty of uses. They are been used for no. of small and large applications including irrigation, chemical movement, sewage movement, flood control and marine applications and even many more. Designing factors like size and type of pump depends on the usage. They are been used in various purposes such as: High pressure jets: The purpose of pumps used is producing a direct high jet pressure of the fluid. The inlet flow is at a constant flow and pressure but the discharge at a high velocity and therefore results to high amount of pressure. Chemical Injection: The Reciprocating Pumps are even used in the chemical industry where they need to inject the chemical in a certain flow or pressure. It is been used at very high precise and accuracy Irrigation: The pump is usually used in farms and gardens to distribute water throughout equally and automatically without any sort of manual efforts. Sewage movement: The pump are been used to move the slurry or sewage material in a very easy and automatic way. The main advantage is the time constraint. It takes very less time as well as it is very cheap compared to other techniques. Marine application: The vast amount of usage is being the marine sector where they need to use water movement from one part to other through a pump. The pump is very easy and compact source of product which can be installed very easily and without any maintenance in future. In marine field pump is used for: Lubricating oil transfer Fuel oil transfer Auxiliary circulating and condensate. Domestic uses: Reciprocating pump is even used as domestic purposes. In olden days it was very common to use a hand pump which was a type of reciprocating pump with help of which we can pull the underground water for various purposes such as home usage, irrigation, construction, small scale industry and many more. Discharge and Pressure Characteristics The working principle and the characteristic is been keenly observed earlier. It is been very easy to analyse the discharge and pressure constraints of reciprocating pumps. The discharge of the reciprocating pump is not uniform and stable. The discharge characteristic depends on: Head flow of fluid Fluid density Speed of reciprocating piston Pump size and design The discharge is completely non-uniform and throttling. The pulsating property of the discharge fluid is seen. This is because the piston moves at a high velocity hitting the fluid out wards and the hitting of the piston is not a continuous act which can give a uniform pressure outlet. Despite of vital use, the reciprocating pump still encounter pulsating pressure which is been seen at the suction and discharge lines. This pulsating feature is result of the interaction between unstable flow of fluid and the dynamic characteristics of the fluid particles. Pressure pulsating in the suction line can lead to the cavitation, either in the line itself or in the cylinder chamber. If cavitation is been experienced at the start of the piston stroke than the piston loading and the crank assembly can fail. Because of all this factors it reduces the life of the pump and also affects the safety conditions (K A Edge, 1997) Pump Performance and Efficiency The head of flow against which the pump works is called total head, H. The total head of the pump is the energy imparted to the liquid by the pump. H = hd hg Therefore, the effective head of a pump is expressed by the following equation: H = Equation 1 (Sorensen, 1969) This design principle of the pump work similarly as that of the turbines. The energy of supplied to the pump by the rotating shaft to move the piston inside the cylinder, in terms of bhp: Energy, e = = The capacity of the pump is proportional to its displacement per unit time, D. Assuming 100% of the hydraulic efficiency of the pump, the displacement of the pump is calculated. The displacement is the calculated capacity of pump which is proportional to: Cross-sectional area of piston, A Length of the stroke, S No. of cylinders, n Pump speed in rpm (gallons per minute) D = (A ÃÆ'- S ÃÆ'- n ÃÆ'- rpm) / 231 In case of double acting pumps, the cross sectional area is twice to be taken in to account from which the cross sectional area of piston rod (a) is subtracted. In double acting pumps, D = ((2A a) ÃÆ'- S ÃÆ'- n ÃÆ'- rpm) / 231 The volumetric efficiency of the pump is expresses in terms of percentage. It is directly proportional to the ratio of the total discharge volume to piston displacement. The ratio (r) is equal to (c + d)/d where: D = volume displaced by piston C = Additional volume between the discharge and suction valves. So it is clearly seen that smaller the ratio, the volumetric efficiency is tend to be better. Mathematically it is expressed as: VE = 1 (P ÃÆ'- b ÃÆ'- r ) S Where P is pressure B is the liquid compressibility factor R is volume ratio S is the slip. (Joe Evans, 2004) Losses in Reciprocating Pump There are various losses which are been encountered in the pump such as: Frictional losses Head losses Heat transfer losses The various losses occur due to the friction and the movement of the fluid. It depends on the head flow of fluid, density of the fluid, piston speed and the fluid suction capacity as well as discharge. There are lots of constraints been involved here, but it simply can be minimised but not 100% avoided. Advantages Easy in working Inexpensive Compact and Easy to install Low maintenance Works at high speed and at low power Disadvantages The major disadvantage of the reciprocating pump is that it has a discontinuous discharge flow which with variable pressure and hence it adversely affects the potential of the pump usage. There are various techniques been used to minimise the pulsating feature but it still tend to create problems. There are some technical ways used to minimise it by using sensors or throttle valves which keeps the discharge pressure uniform, but it does affect the overall flow and creates a kind of friction to the overall discharge pressure. Secondly, it has a disadvantage that it is prone to flow separation at the lowest pressure point in the system. The design of the system is such that this problem would be there and cannot be solved. The various different tries and practical experiments to minimise it would not work till the design is not thoroughly changed. In spite of all this disadvantages it is still a very useful product and widely used.

Euthanasia (greek for good) :: Free Euthanasia Essay

The word "euthanasia" comes from the greek--eu, "good", and thanatos, "death". Literally, "good death". The dictionary describes euthanasia as "a quiet and easy death, the means of procuring this or, the action of inducing a quiet and easy death." Euthanasia has a becomes a legal, medical, and ethical issue over which opinions are divided. I feel that if there is no hope for a cure for a terminally ill patient then if they want, let them out of their misery. There are two different types of euthanasia. One is active euthanasia, which means that a physician or other medical personnel takes a deliberate action that will include death such as: administering an overdose of morphine, insulin, or barbiturates followed by an injection of curare. The second type is passive euthanasia, which is letting a patient die for lack of treatment that has begun. Some examples of passive euthanasia are taking patients off of a respirator or any other form of life-support and stopping the patients food supply (Compton's Encyc). Who decides if the patient should die? The United States leaves the decision up to the state which usually allows the physician to suggest the option of death to a patient's relatives. Non-terminally ill patients have been put to death without their consent at the request of relatives or the insistence of the physician (Compton's Encyc). In Washington two physicians had different opinions on the subject of assisted suicide. One physician had gotten a call from a patient who had been diagnosed with AIDS and was talking about suicide and said he was now ready to die. He had lost 60 pounds and was in so much pain the doctor placed him on morphine. The physician went to his patient's apartment and showed him how to turn the morphine drip up to a deadly level. Six hours later he received a phone call and the patient was dead. Another physician received the same request from an AIDS patient. Instead of helping the patient die the physician refused and put him on morphine, steroids, and physical therapy. Just before the patient died in the fall he said that he had a wonderful summer with his family (Courier). Opposers of euthanasia feel that a person should not have the right to end their life. They think that the patient may consider taking their life into their own hands and fail, and this may create a worse situation.

The Life of Ludwig Van Beethoven :: Biographies

The Life of Ludwig Van Beethoven The rise of Ludwig van Beethoven into the ranks of history's greatest composers was paralleled by and in some ways a consequence of his own personal tragedy and despair. Beginning in the late 1790's, the increasing buzzing and humming in his ears sent Beethoven into a panic, searching for a cure from doctor to doctor. By October 1802 he had written the Heiligenstadt Testament confessing the certainty of his growing deafness, his consequent despair, and suicidal considerations. Yet, despite the personal tragedy caused by the "infirmity in the one sense which ought to be more perfect in [him] than in others, a sense which [he] once possessed in the highest perfection, a perfection such as few in [his] profession enjoy," it also served as a motivating force in that it challenged him to try and conquer the fate that was handed him. He would not surrender to that "jealous demon, my wretched health" before proving to himself and the world the extent of his skill. Thus, faced with su!ch great impending loss, Beethoven, keeping faith in his art and ability, states in his Heiligenstadt Testament a promise of his greatness yet to be proven in the development of his heroic style. By about 1800, Beethoven was mastering the Viennese High-Classic style. Although the style had been first perfected by Mozart, Beethoven did extend it to some degree. He had unprecedently composed sonatas for the cello which in combination with the piano opened the era of the Classic-Romantic cello sonata. In addition, his sonatas for violin and piano became the cornerstone of the sonata duo repertory. His experimentation with additions to the standard forms likewise made it apparent that he had reached the limits of the high-Classic style. Having displayed the extended range of his piano writing he was also begining to forge a new voice for the violin. In 1800, Beethoven was additionally combining the sonata form with a full orchestra in his First Symphony, op. 2. In the arena of piano sonata, he had also gone beyond the three-movement design of Haydn and Mozart, applying sometimes the four-movement design reserved for symphonies and quartets through the addition of a minuet or scherzo. Having confidently proven the high-Classic phase of his sonata development with the "Grande Sonate," op. 22, Beethoven moved on to the fantasy sonata to allow himself freer expression. By 1802, he had evidently succeeded in mastering the high-Classic style within each of its major instrumental genres-the piano trio, string trio, string quartet and quintet, Classic piano concerto, duo sonata, piano sonata, and symphony. Having reached the end of the great

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