Estimate the firm's cost of capital, price per share, and market value based on its optimal capital structure that you have devised.© BrainMass Inc. brainmass.com October 24, 2018, 9:51 pm ad1c9bdddf
Optimal capital structure amazon.com
Devise the optimal capital structure for amazon.com in light of current, business, economic, and industry trends.
Amazon.com is amazing online super mart selling numerous items including book for which it is famous for. Now it is one of the world's leading online retailers with over 17 million customer accounts in over 150 countries. The company sells books, music, DVDs, videos, toys, electronics software, video games, home improvement products amongst others. Through its marketplace services- amazon.com auctions, zshops etc. the company has created web-based marketplaces where buyers and sellers enter into transactions involving a wide range of products.
As the company states in its 199 10-k:
"We offer our customers a superior shopping experience by providing high value through selection, convenience, ease of use, low prices, product information and an intense focus on customer service. We are a proven technology leader, having developed electronic commerce innovations such as 1-click technology, personalized shopping services, easy to use search and browse features, secure payment protections, and wireless access to our stores."
In their 2005 SEC filing, Amazon describes the vision of their business as to:
"Relentlessly focus on customer experience by offering our customers low prices, convenience, and a wide selection of merchandise."
Trends- Economy, Industry and Business
Socio & Economic Factors
One has monitor the economic trends like GDP trends, Interest rates, Money supply, Inflation rates, Unemployment levels, Disposable income. It has to identify the growing target segment and introducing new products and services to meet their needs.
They have to provide convenience, quality, speed and top notch products and services
to attract new customers and to retain the loyal existing customers as well. In today's modern and fast-paced world, people are constantly looking for ways to help them better manage their time. People strive to make their life better, and this home based shopping has the potential to fulfill all of these needs. ...
The solution devises the optimal capital structure for amazon.com in light of current, business, economic, and industry trends.
Also, it estimates the firm's cost of capital, price per share, and market value based on its optimal capital structure that you have devised.
AMAZON.com: Weighted Average Cost of Capital (WACC)
Please show work and calculations.
Estimate the components of the cost of capital for AMAZON using MARKET data:
(a) For the cost of common stock, analyze using the dividend growth model and beta estimate using the dividend growth model and CAPM. To determine Beta, first use published sources. Next calculate your own beta estimate using regression analysis with 52 weeks of daily data. See the textbook's website to DOWNLOAD the regression tool kit from Chapter 6 (Financial Management Theory and Practice, 14th Edition, Brigham & Ehrhardt), If the published estimated and the results of your regression analysis differ, justify your final choice of Beta for the WACC determinations.
(b) Calculate the cost of preferred stock.
(c) Calculate the cost of DEBT. Recall that you do NOT use the coupon rate, but instead use the YTM for each bond issue.
(d) Determine the appropriate weights for each of the categories using MARKET values.
(e) Calculate the company's WACC.
(f) In your opinion, has the company minimized its WACC? What could it have done differently? Recall that more debt increases the risk of BANKRUPTCY and more equity means the flotation costs of issuing stock.
(g) Provide reasons why or why not the current WACC is appropriate for future use by the company. If not, explain which WACC should be used for future business decisions.View Full Posting Details