Question

Consider the following data for Nike​ Inc.: In 2009 it had $ 19 comma 150 million in sales with a 10​% growth rate in​ 2010, but then slows by 1 % to the​ long-run growth rate of 5​% by 2015. Nike expects EBIT to be 10​% of​ sales, increases in net working capital requirements to be​ 10% of any increases in​ sales, and capital expenditures to equal depreciation expenses. Nike also has ​$2 comma 300 million in​ cash, ​$32 million in​ debt, 486 million shares​ outstanding, a tax rate of 24​%, and a weighted average cost of capital of 10​%. a. Suppose you believe​ Nike's initial revenue growth rate will be between 7 % and 11 % ​(with growth slowing linearly to 5​% by year​ 2015). What range of prices for Nike stock is consistent with these​ forecasts? b. Suppose you believe​ Nike's initial revenue EBIT margin will be between 9 % and 11 % of sales. What range of prices for Nike stock is consistent with these​ forecasts? c. Suppose you believe​ Nike's weighted average cost of capital is between 9.5​% and 12​%. What range of prices for Nike stock is consistent with these​ forecasts? d. What range of stock prices is consistent if you vary the estimates as in parts ​(a​), ​(b​), and ​(c​) ​simultaneously?

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605