What is Amazon's WACC? Note: Amazon does not have r preferred stock. Apply the CAPM to estimate the cost of equity using the expected market return and risk-free rate from the Walmart WACC estimate. Answer to 2 decimal places in % format w/o % sign.

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okpalawalter8 okpalawalter8 · Answer 1 · 2022-07-11T20:25:24+02:00

Hence, 0.21 is the amount of taxes that were mentioned in the Walmart example, in addition to 0.66 percent and 12.70 percent.

1.1634= bond from line

Generally, the cost of equity is mathematically given as

Using the CAPM to estimate the cost of equity using the expected market return and risk-free rate from the Walmart WACC we have

C.E=R+[tex]\beta[/tex] (ER-R)

Where

R=risk free rate

[tex]\beta[/tex] = beta of the investment

(ER-R)=market risk premium

Therefore, from the Walmart WACC

CE=0.66%+1.1634*(12.7%-0.66%)

CE=14.68%

Generally, the Market value is mathematically given as

MV= 1,215,500,000,000

Generally, the cost of debt is mathematically given as

CD= 37,855,403,701.28

Hence

Total value= 1,215,500,000,000+37,855,403,701.28

Total value= 1,253,355,404,000

[tex]Weight of equity= \frac{1,215,500,000,000}{1,253,355,404,000}*100[/tex]

Weight of equity= 96.98%

[tex]Weight of debt= \frac{37,855,403,701.28}{1,253,355,404,000} *100[/tex]

Weight of debt=3.02%

Therefore

0.969814*0.68+0.03020.014*(1-0.21) = 14.27%

Hence, 0.21 is the amount of taxes that were mentioned in the Walmart example, in addition to 0.66 percent and 12.7 percent.