Based on last year’s results and various projections of its future operations, y

Question

Based on last year’s results and various projections of its future operations, you have determined that Amazon Corporation's free cash flows this year will be $3,337 million with future free cash flows growing at 4% per year. The company also has nonoperating assets of $670 million and nonoperating liabilities of $2,250 million. The weighted average cost of capital is 11% and there are 696 million shares of common stock outstanding. What should be the value of the company's common stock? Present your answer to two decimal places (e.g., $20.00).

Explanation / Answer

Firm Value = FCF / (WACC - g) = 3,337 / (11% - 4%) = $47,671 million

Value of equity = Firm Value + Non-operating assets - Non-operating liabilities = 47,671 + 670 - 2,250 = $46,091 million

=> Value of share = Equity / No. of shares = 46,091 / 696 = $66.22

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