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Based on the WACC and OCS information below should Amazon.com, Inc. take on more debt, repurchase stock, have a seasoned equity offering? Justify your answers
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| Input Data (Millions Except Per Share Data) |
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| Tax rate |
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30.79% |
| Debt (D) |
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$3,457.00 |
| Number of shares (n) |
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290 |
| Stock price per share (P) |
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$71.91 |
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| Capital Structure (Millions Except Per Share Data) |
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| Market value of equity (S = P A?´ n) |
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$20,846.71 |
| Total value (V = D + S) |
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$24,303.71 |
| Percent financed with debt (wd = D/V) |
k |
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14.2% |
| Percent financed with stock (ws = S/V) |
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85.8% |
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| Cost of Capital |
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| Cost of debt (rd) |
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3.33% |
| Beta (b) |
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1.15 |
| Risk-free rate (rRF) |
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2.20% |
| Market risk premium (RPM) |
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10.30% |
| Cost of equity (rs = rRF + b A?´ RPM ) |
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14.05% |
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| Cost of Equity from Dividend Growth Model |
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| Future Dividend Growth Rate |
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19.05% |
| Last Dividend $ |
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0.9000 |
| Share Price $ (4/5/13) |
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$71.91 |
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| Cost of Equity from Dividend Growth Model |
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20.54% |
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| Cost of Equity from Bond Plus Markup |
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| Cost of debt |
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3.33% |
| Risk Markup |
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9.80% |
| Cost of Equity from Bond Plus Markup |
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13.13% |
| Average rs |
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15.9% |
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| WACC |
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13.97% |
