8.8 Application: Amazon.Com
Summary:
RIV Approach to Estimating Intrinsic Value
Intrinsic
value = Book value per share + Present value of Residual
Earnings discounted back at the stock’s cost of equity capital
(i.e., investors’ required rate of return from investing in
stocks).
We can now apply this model using the
Valuation Tutor software.
The next figure shows you a calculation for Amazon.Com in
Valuation Tutor.
You can see all the inputs required for the calculation:
It is important to understand where these
numbers come from including what the projected financials look
like over time. This lets you check how realistic
important assumptions such as growth behavior are in terms of
the implied future financial outcomes. When you click
Calculate, Valuation Tutor also provides you with the details of
the calculation: