Question

Suppose Amazon Inc. pays no dividends but spent $ 2.95 billion on share repurchases last year. If​ Amazon's equity cost of capital is 7.6 %​, and if the amount spent on repurchases is expected to grow by 6.4 % per​ year, estimate​ Amazon's market capitalization. If Amazon has 428 million shares​ outstanding, what stock price does this correspond​ to?

Answer 1

Market Capitalization = $261.567 Billion

Stock Price per share = $611.137 per share

Step-by-step explanation:

given data

spent = $2.95 billion

equity cost of capital ke = 7.6 %​ = 0.076

grow = 6.4 % per​ year = 0.064

shares​ outstanding = 428 million = 0.428 Billion

to find out

Amazon’s Market Capitalization and stock price

solution

first we get here Amazon's market capitalization that is express as

Market Capitalization = Cash Flow (1 + g) ÷ (Ke - g) ..............1

here g is grow rate and ke is equity cost of capital

Market Capitalization =
`(2.95(1+0.064))/((0.076-0.064))`

Market Capitalization = $261.567 Billion

and

Stock Price per share will be as

Stock Price per share =
`(Market\ Capitalization)/(shares\ outstanding)` ..................2

Stock Price per share =
`(261.567)/(0.428)`

Stock Price per share = $611.137 per share