Suppose Amazon.com Inc. pays no dividends but spent $2.85 billion on share repur

Question

Suppose Amazon.com Inc. pays no dividends but spent $2.85 billion on share repurchases last year. If Amazon's equity cost of capital is 7.9%, and if the amount spent on repurchases is expected to grow by 6.4% per year, estimate Amazon's market capitalization. If Amazon has 451 million shares outstanding, what stock price does this correspond to?

Estimate Amazon's market capitalization. Amazon's market capitalization is _________billion. (Round to two decimal places.)

If Amazon has 451 million shares outstanding, what stock price does this correspond to?

The stock price per share is ________ (Round to the nearest cent.)

Explanation / Answer

Total payout next year = 2.85 + (2.85*6.4%) = 3.03 billion Equity value = 3.03/(7.9% - 6.4%) = 202 billion Share price = 202 / 0.451 = $447.89 Final answer = $448

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