Jim Cramer of CNBC recently commented that Amazon (AMZN) will start paying dividends in the mediumterm

future because of all of the cash flow that it generates (coupled with a cash balance in excess of $20 billion).

When pressed on the issue, Jim made a bold forecast that Amazon will start paying its first dividend 6 years from now

in the amount of $91.50 per share. Jim also projected that the dividends would grow, over the following 4 years, by

15.00% per year, after which the growth rate would be a constant rate of 6.00%/year, forever. If the appropriate

required return (also called discount rate, because we use it for discounting!) for AMZN's stock is 10.0%, what should

today’s stock price be based on discounted valuation of the future dividends that Cramer has projected?

Answer rating: 100% (QA)

To calculate todays stock price based on the discounted valuation of future dividends we need to det... View the full answer