Refer to the Amazon.com, Inc., consolidated financial statements in Appendix A at the end of this book.

1. Amazon.com, Inc.’s consolidated statements of operations do not mention income from continuing operations. Why not?

2. Take the role of an investor, and suppose you are determining the price to pay for a share of Amazon.com, Inc., stock. Assume you are considering three investment capitalization rates that depend on the risk of an investment in Amazon.com: 5%, 6%, and 7%.

Compute your estimated value of a share of Amazon.com, Inc., stock using each of the three capitalization rates. Which estimated value would you base your investment strategy on if you rate Amazon.com, Inc., risky? If you consider Amazon.com, Inc., a safe investment? Use basic earnings per share for 2008.

3. Go to Amazon.com’s Web site and compare your computed estimates to its actual stock price. Which of your prices is most realistic? (Challenge)