Question

Amazon will pay a dividend of $25 per share (which is basically its current EPS), starting...

Amazon will pay a dividend of $25 per share (which is basically its current EPS), starting 5 years from today. If the discount rate is 7.5% and the estimated growth rate is 6% per year forever. What should the value of Amazon be today, using the dividend discount model. Compare this to the actual price of Amazon.

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Answer #1

Step 1) Calculate the price of year 4:

Step 2) Discount it back to time 0

So the price is 1248 now

Current pruce is 3272.71 which means that it is over valued according to the price calculated above

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