4. Robert Stansky, the portfolio manager of the Magellan Fund, was trying to ascertain the worth of Amazon.com and whether it should be purchased for his portfolio. He was convinced that Amazon was an excellent company that would continue to benefit from the growth of e-commerce and that it would continue to be a leader in the sale of books and music and could be successful in expanding into other fields such as prescription drugs, electronics, toys, etc. But all the old valuation rules seem useless. One couldnt compute a P/E multiple because there were no earnings. Price-to-sales ratios made no sense because the stock sold on expectations of future, not current, sales. Stansky decided to value Amazon by estimating its worth 10 years from now and then discounting that value back to the present. He then made the following generous assumptions about Amazons growth in the years ahead.

Amazons sales in year 2013: $80B

Amazons net after-tax profit margin in 2013: 1 percent (not bad for a low margin retailer).

Number of shares outstanding in 2013: 400 million (assumes moderate issue of optioned shares to executives)

Appropriate P/E in 2013: 25 (assumes Amazon will get a market multiple)

Appropriate discount rate: 15 percent (Amazon is riskier than the general market)

On the basis of these assumptions, how much per share should an investor be willing to pay for Amazon.coms common stock?