Amazon.com in year 2000 case study

Question 1:

What was Amazon's original business model?

Question 2:

How has Amazon changed this model? How does this model add value for customers? How

sustainable is this model?

Question 3:

What are the key risks associated with Amazon's current business strategy?

Question 4:

What would you look at as early warning signs for these risks?

Question 5:

Conduct a research on Amazon's performance in recent years (about 3 years from 2016 or 2017).

What is your assessment of Amazon's future?

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Question 6:

Suppose, Amazon has free cash flow to firm (FCFF) of $700 million and free cash flow to equity

(FCFE) of $620 million. Amazon's before-tax cost of debt is 5.7 percent and its required rate of return

for equity is 11.8 percent. The company expects a target capital structure consisting of 20 percent

debt financing and 80 percent equity financing. The tax rate is 33.33 percent, and FCFF is expected

to grow forever at 5.0 percent. Amazon has debt outstanding with a market value of $2.2 billion and

has 200 million outstanding common shares.

i) What is Amazon's weighted average cost of capital?

ii) What is the total value of Amazon's equity using the FCFF valuation approach?

iii) What is the value per share using this approach?