Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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How do I calculate "Cost of equity", "Discount rate (WACC)", and "growth rate"?

**Financial Metrics Overview:** 1. **Amazon Equity Beta:** 1.5 - A measure of Amazon's stock volatility compared to the market. 2. **Market Risk Premium:** 5.00% - The return expected from the market over the risk-free rate. 3. **10-Year Treasury Rate (1 Jan 2020):** 1.90% - Considered a risk-free rate for this time period. 4. **Cost of Debt:** 2.00% - The effective rate a company pays on its borrowed funds. 5. **Shares Outstanding (31 Dec 2019):** 504 million - The total number of a company's shares of stock that are owned by shareholders on this date. 6. **Debt Ratio (Debt / (Debt + Equity)):** 2.60% - The proportion of debt used in financing the company relative to the total capital. 7. **Tax Rate:** 17.0% - The percentage of income paid as tax. 8. **Discount Rate (WACC):** - Not provided, but typically calculated using the company's cost of equity and after-tax cost of debt, weighted by the equity and debt ratios. 9. **Growth Rate:** - Not provided, but would be used for future cash flow estimates. **Note:** This information helps determine the company's cost of capital and assess investment potential.
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Transcribed Image Text:**Financial Metrics Overview:** 1. **Amazon Equity Beta:** 1.5 - A measure of Amazon's stock volatility compared to the market. 2. **Market Risk Premium:** 5.00% - The return expected from the market over the risk-free rate. 3. **10-Year Treasury Rate (1 Jan 2020):** 1.90% - Considered a risk-free rate for this time period. 4. **Cost of Debt:** 2.00% - The effective rate a company pays on its borrowed funds. 5. **Shares Outstanding (31 Dec 2019):** 504 million - The total number of a company's shares of stock that are owned by shareholders on this date. 6. **Debt Ratio (Debt / (Debt + Equity)):** 2.60% - The proportion of debt used in financing the company relative to the total capital. 7. **Tax Rate:** 17.0% - The percentage of income paid as tax. 8. **Discount Rate (WACC):** - Not provided, but typically calculated using the company's cost of equity and after-tax cost of debt, weighted by the equity and debt ratios. 9. **Growth Rate:** - Not provided, but would be used for future cash flow estimates. **Note:** This information helps determine the company's cost of capital and assess investment potential.
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