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Valuing Growth -- Theory |
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Valuing Growth -- Application |
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To help you prepare this case, here is a speadsheet of Exhibits 6&7. Like any real world problem, not all the information you will need is at your fingertips. Your objective is to come to an informed decision given the information you have. So, for example, the case is very unclear about the discount rate to use. I myself never make a (risky) financial decision using a single discount rate anyway --- there is too much estimation error. Rather I calculate the decision for a range of discount rates, a policy I would strongly suggest following.
Given the technological constraints, I will be cold calling throughout the case presentation. I will have seating charts for the remote location and will use those to call on people there. Please be prepared to justify all answers you provide. I would strongly suggest working in groups in preparing the case.
Your assignment is to value Amazon.com using the Schwartz-Moon model. To do this you will need to download the case on which the assignment is based: Amazon.com. This case comes with a DOS based computer program that you will need to run. To do this you will need the following three files: Amazon-AIF.exe, Amazon-AIF.dat and Amazon-Basic.dat. Click on each of them and save them to a place that is convenient. An explanations on how to use the files are in the case.
This assignment is due on Jan 30, at the beginning of class. As I explained in class the purpose of this assignment is to communicate the economics that underlie growth options. It is important that this comes out in your case write ups.
To be fair to all students, my policy with case write ups is that I will not answer questions that pertain to the case. I do answer clarification questions, but only if I can clarify the question for all students. So if you have a clarification question, you may email it to me. I will only answer if I agree that it is a clarification question.
Good Luck!