To prepare for this Assignment, use the Netflix and Amazon Data Spreadsheet, located in the file attached to generate a pro forma forecast and consider what this indicates about the future for these two companies.

Provide the following:

A forecast of Netflix, Inc., and Amazon.com, Inc.s revenue, costs, and estimated cash flows into the next five years.

NEED HELP FILLING IN THE BLANK

Netflix (numbers in 1000's)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Forecasted Revenue Growth

______%

______%

_______%

_______%

______%

_______%

(1) Sale Revenue

$______

$_______

$_______

$_______

$_______

$_______

Operating Costs Margin

______%

______%

______%

______%

______%

______%

(2) Operating Costs

$_______

$_______

$_______

$_______

$_______

$_______

Operating Profit

$_______

$_______

$_______

$_______

$_______

$_______

(3) Taxes

$_______

$_______

$_______

$_______

$_______

$_______

After Tax Profit

$_______

$_______

$_______

$_______

$_______

$_______

Net Investment (% of Revenue)

______%

______%

______%

______%

______%

______%

(4) Net Investment

$_______

$_______

$_______

$_______

$_______

$_______

Working Capital

$_______

$_______

$_______

$_______

$_______

$_______

(5) Change in Working Capital

$_______

$_______

$_______

$_______

$_______

$_______

Netflix (numbers in 1000s)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

(1) Sale Revenue

$______

$_______

$_______

$_______

$_______

$_______

(2) - Operating Costs

$_______

$_______

$_______

$_______

$_______

$_______

(3) - Taxes

$_______

$_______

$_______

$_______

$_______

$_______

(4) - Net Investment

$_______

$_______

$_______

$_______

$_______

$_______

(5) - Change in Working Capital

$_______

$_______

$_______

$_______

$_______

$_______

(6) = Free Cash Flow

$_______

$_______

$_______

$_______

$_______

$_______

Amazon(numbers in 1000's)

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

Forecasted Revenue Growth

______%

______%

_______%

_______%

______%

_______%

(1) Sale Revenue

$______

$_______

$_______

$_______

$_______

$_______

Operating Costs Margin

______%

______%

______%

______%

______%

______%

(2) Operating Costs

$_______

$_______

$_______

$_______

$_______

$_______

Operating Profit

$_______

$_______

$_______

$_______

$_______

$_______

(3) Taxes

$_______

$_______

$_______

$_______

$_______

$_______

After Tax Profit

$_______

$_______

$_______

$_______

$_______

$_______

Net Investment (% of Revenue)

______%

______%

______%

______%

______%

______%

(4) Net Investment

$_______

$_______

$_______

$_______

$_______

$_______

Working Capital

$_______

$_______

$_______

$_______

$_______

$_______

(5) Change in Working Capital

$_______

$_______

$_______

$_______

$_______

$_______

					Amazon (numbers in 1000s)
					Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
	(1) Sale Revenue				$______	$_______	$_______	$_______	$_______	$_______
	(2) - Operating Costs				$_______	$_______	$_______	$_______	$_______	$_______
	(3) - Taxes				$_______	$_______	$_______	$_______	$_______	$_______
	(4) - Net Investment				$_______	$_______	$_______	$_______	$_______	$_______
	(5) - Change in Working Capital				$_______	$_______	$_______	$_______	$_______	$_______
	(6) = Free Cash Flow				$_______	$_______	$_______	$_______	$_______	$_______

The appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.s forecasted cash flows.

NEED HELP FILLING IN THE BLANK

Ke = Rf + * ( Rm R f ) For Netflix

Ke = Rf + * ( Rm R f ) For Amazon

An appropriate risk-adjusted rate of return for use in evaluating an investment in Netflix, Inc., and Amazon.com, Inc.

NEED HELP FILLING IN THE BLANK:

Using CAPM, E(R) = Rf + Beta x (Rm - Rf) For Netflix = the appropriate risk- adjusted rate of return

Using CAPM, E(R) = Rf + Beta x (Rm - Rf) For Amazon = the appropriate risk- adjusted rate of return

A determination of the estimated fair market value of 100% of Netflix, Inc., and Amazon.com, Inc.s equity.

NEED HELP FILLING IN THE BLANK:

Terminal Value = [Final project year cash flow (1 + long- term cash flow growth rate )]/ (Discount rate long term cash flow growth rate)

Calculating Total Enterprise Value

We now have the following free cash flow projection for Netflix and Amazon:

Forecast Period	Year 1	Year 2	Year 3	Year 4	Year 5	Terminal Value
Free Cash Flow	$	$	$	$	$	$316.9M

To determine a total company value, or enterprise value (EV), we take the present value of the cash flows, divide each by the discount rate (___%) and then add the results:

EV of Netflix = $_____

EV of Amazon = $_____

Calculating the Fair Value of Equity

Fair Value = Enterprise Value Debt

Fair Value of Netflix = $___ - $____ = $____

Fair Value of Amazon = $___ - $____ = $____