2019-02-04T13:05:24+00:00

(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 w

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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.


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