Question

Suppose Amazon Inc. pays no dividends but spent $ 3.00 billion on share repurchases last year. If​ Amazon's equity cost of capital is 8.0 %​, and if the amount spent on repurchases is expected to grow by 6.5 % per​ year, estimate​ Amazon's market capitalization. If Amazon has 450 million shares​ outstanding, what stock price does this correspond​ to?

Answer 1

$471.11

Step-by-step explanation:

Total payout next year = 3 billion × 1.06 = $3.18 billion

Equity Value = 3.18 / (8% – 6.5%) = $212 billion

Share price = 212 / 0.45 = $471.11