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what is the appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.’s

ID: 2598557 • Letter: W

Question

what is the appropriate discount rate for Netflix, Inc., and Amazon.com, Inc.’s forecasted cash flows.

Netflix Balance Sheet

Amazon Balance Sheet

Netflix Inc. 2012 2013 2014 Assets Current assets: Cash and cash equivalents $                     290,291 $                     604,965 $                 1,113,608 Short-term investments                         457,787                        595,440                        494,888 Current content library, net                     1,368,162                     1,706,421                    2,125,702 Other current assets                         124,551                        151,937                        206,271 Total current assets                     2,240,791                     3,058,763                    3,940,469 Non-current content library, net                     1,506,008                     2,091,071                    2,773,326 Property and equipment, net                         131,681                        133,605                        149,875 Other non-current assets                           89,410                        129,124                        192,981 Total assets $                  3,967,890 $                 5,412,563 $                 7,056,651 Liabilities and Stockholders' Equity Current liabilities: Current content liabilities $                  1,366,847 $                 1,775,983 $                 2,117,241 Accounts payable                           86,468                        108,435                        201,581 Accrued expenses                           53,139                          54,018                          69,746 Deferred revenue                         169,472                        215,767                        274,586 Total current liabilities                     1,675,926                     2,154,203                    2,663,154 Non-current content liabilities                     1,076,622                     1,345,590                    1,575,832 Long-term debt                         200,000                        500,000                        900,000 Long-term debt due to related party                         200,000                                    -                                     -   Other non-current liabilities                           70,669                          79,209                          59,957 Total liabilities                     3,223,217                     4,079,002                    5,198,943 Stockholders' equity:                                   56                                  60                                  60                         301,616                        777,441                    1,042,810                             2,919                             3,575                           (4,446)                         440,082                        552,485                        819,284 Total stockholders' equity                         744,673                     1,333,561                    1,857,708 Total liabilities and stockholders' equity $                  3,967,890 $                 5,412,563 $                 7,056,651

Explanation / Answer

Dear Friend,

Determination of the estimated fair market value of 100% of Netflix, Inc., and Amazon.com, Inc.’s equity is as follows:

For computation of Fair Market Value from the Balance sheet, we need two elements. First calculate the capital Employed and then divide the capital Employed with Number of Equity Stock.

Netflix Inc., (Amount in $. )

Now after computation of the capital Employed, divide the capital Employed with Number of Equity. As the given information is not clear, we are not able to calculate the same.

Amazon.com (Amount in $. Billions)

Now after computation of the capital Employed, divide the capital Employed with Number of Equity. As the given information is not clear, we are not able to calculate the same.

Particulars 2012 2013 2014 Current Assets 2,240,791 3,058,763 3,940,469 Other Non Current Assets 1,727,099 2,353,800 3,116,182 Total Assets (A) 3,967,890 5,412,563 7,056,651 Current Liabilities 1,675,926 2,154,203 2,663,154 Long Term Debt 200,000 500,000 900,000 Other Non Current Liabilities 1,347,291 1,424,799 1,635,789 Total Liabilites (B) 3,223,217 4,079,002 5,198,943 Capital Employed (A-B) 744,673 1,333,561 1,857,708