Use Amazon information to answer these:

a. Based on 2019 numbers, what is the value for their sustainable growth rate for 2020?

b. Assume Amazon will have the same values for t, L and d in 2020 that it did in 2019. For them to grow in 2020 at the same sales growth rate as they did from 2018 to 2019, what will the value of p have to be? How does this value for p compare to the p in part a? Why did it change as it did? Will p change in this way? Explain. What else could Amazon do to t, L or d instead of changing p?

AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2018 2017 2019 S 19,934 $ 21,856 S 32,173 3,033 10,073 11,588 11,478 4,215 202 (292) (29) 15,341 5,418 274 21,789 6,864 164 (249) 796 219 441 (3,583) (4,780) 7,100 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other Stock-based compensation Other operating expense (income), net Other expense (income), net Deferred income taxes Changes in operating assets and liabilities: Inventories Accounts receivable, net and other Accounts payable Accrued expenses and other Unearned revenue Net cash provided by (used in) operating activities INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from property and equipment sales and incentives Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities Purchases of marketable securities Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from long-term debt and other Repayments of long-term debt and other Principal repayments of finance leases Principal repayments of financing obligations Net cash provided by (used in) financing activities Foreign currency effect on cash, cash equivalents, and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash (1,314) (4,615) 3,263 472 1,151 30,723 (3,278) (7,681) 8,193 (1,383) 1,711 38,514 283 738 18,365 (11.955) 1.897 (13,972) 9,677 (12,731) (27,084) (13,427) 2,104 (2,186) 8,240 (7,100) (12,369) (16,861) 4,172 (2,461) 22,681 (31,812) (24,281) 16,228 (1,301) (4,799) (200) 9,928 713 768 (668) (7,449) (337) (7,686) (351) 10,317 2,273 (2,684) (9,628) (27) (10,066) 70 1,922 4,237 2019 $ Year Ended December 31, 2017 2018 118,573 S 141,915 S 59,293 90,972 177,866 232,887 160,408 120,114 280,522 111,934 25,249 22,620 10,069 3,674 214 Net product sales Net service sales Total net sales Operating expenses: Cost of sales Fulfillment Technology and content Marketing General and administrative Other operating expense (income), net Total operating expenses Operating income Interest income Interest expense Other income (expense), net Total non-operating income (expense) Income before income taxes Provision for income taxes Equity-method investment activity, net of tax Net income Basic earnings per share Diluted earnings per share Weighted average shares used in computation of earnings per share: Basic Diluted 173,760 4,106 202 (848) 346 (300) 3,806 (769) (4) 3,033 S 6.32 S 139,156 34,027 28,837 13,814 4,336 296 220,466 12,421 440 (1,417) (183) (1,160) 11,261 (1,197) 165,536 40,232 35,931 18,878 5,203 201 265,981 14,541 832 (1,600) 203 (565) 13,976 (2,374) (14) 11,588 23.46 23.01 9 $ 10,073 $ $ 20.68 $ $ 6.15 S 20.14 S 480 494 487 500 493 504 See accompanying notes to consolidated financial statements. December 31, 2019 2018 ASSETS S Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Operating leases Goodwill 31,750 $ 9,500 17,174 16,677 75,101 61,797 36,092 18,929 20,497 20,816 96,334 72,705 25,141 14,754 16,314 225,248 Other assets 14,548 11,202 162,648 $ $ S 38,192 $ 23,66 6,536 68,391 9,650 23,495 17,563 47,183 32,439 8,190 87,812 39,791 23,414 12,171 Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term lease liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares 500 Issued and outstanding shares -- none Common stock, S0.01 par value: Authorized shares - 5,000 Issued shares -- 514 and 521 Outstanding shares 491 and 498 Treasury stock, at cost Additional paid-in capital Accumulated other comnrehensive incama (lace 5 (1,837) 26,791 (1,837) 33,658 S 31,750 $ 9,500 17,174 16,677 asri anu cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Operating leases Goodwill 75,101 61,797 36,092 18,929 20,497 20,816 96,334 72,705 25,141 14,754 16,314 225,248 14,548 11,202 162,648 $ $ S 38,192 $ 23,663 6,536 68,391 9,650 23,495 17,563 47,183 32,439 8,190 87,812 39,791 23,414 12,171 Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term lease liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, S0.01 par value: Authorized shares - 500 Issued and outstanding shares - none Common stock, S0.01 par value: Authorized shares - 5,000 Issued shares - 514 and 521 Outstanding shares 491 and 498 Treasury stock, at cost Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total stockholders' equity Total liabilities and stockholders' equity (1,837) 26,791 (1,035) 19,625 43,549 162,648 $ El 1 (1,837) 33,658 (986) 31,220 62,060 225,248 $ See accompanying notes to consolidated financial statements AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions) Common Stock Accumulated Additional Other Total Treasury Paid-In Comprehensive Retained Stockholders' Amount Stock Capital Income (Loss) Earnings Equity S 5 $ (1,837) $ 17,186 $ (985) $ 4,916 S 19,285 Shares 477 687 3,033 687 3,033 501 501 7 4,202 4,202 484 5 (1,837) 21,389 (484) 8,636 27,709 916 Balance as of January 1, 2017 Cumulative effect of a change in accounting principle related to stock-based compensation Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2017 Cumulative effect of change in accounting principles related to revenue recognition, income taxes, and financial instruments Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2018 Cumulative effect of change in accounting principle related to leases Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2019 IT III 10,073 912 10,073 (547) (547) 7 5,402 5,402 26,791 491 5 (1,837) (1,035) 19,625 43,549 7 7 TI 11,588 11,588 49 49 7 6,867 6,867 5 $ (1,837) S 33,658 498 $ (986) $ 31,220 $ 62,060 See accomninin lidotod finomai (3,583) (4,780) 7,100 (1,314) (4,615) 3.263 (3,278) (7,681) 8,193 (1,383) 1,711 38,514 283 472 738 18,365 1,151 30,723 (11.955) 1.897 (13,972) 9,677 (12,731) (27,084) (13,427) 2,104 (2,186) 8,240 (7,100) (12,369) (16,861) 4,172 (2,461) 22,681 (31,812) (24,281) 16,228 768 Inventories Accounts receivable, net and other Accounts payable Accrued expenses and other Unearned revenue Net cash provided by (used in) operating activities INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from property and equipment sales and incentives Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities Purchases of marketable securities Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from long-term debt and other Repayments of long-term debt and other Principal repayments of finance leases Principal repayments of financing obligations Net cash provided by (used in) financing activities Foreign currency effect on cash, cash equivalents, and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on long-term debt Cash paid for operating leases Cash paid for interest on finance leases Cash paid for interest on financing obligations Cash paid for income taxes, net of refunds Assets acquired under operating leases Property and equipment acquired under finance leases Property and equipment acquired under build-to-suit arrangements (1,301) (4,799) (200) 9,928 713 1,922 21,856 $ (668) (7,449) (337) (7,686) (351) 10,317 32,173 $ 2,273 (2,684) (9,628) (27) (10,066) 70 4,237 36,410 S s 328 $ 854 S 875 3,361 647 381 200 119 957 39 194 1,184 10.615 881 7,870 13,723 1,362 9,637 3,541 3,641 See accompanying notes to consolidated financial statements. 37 AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2018 2017 2019 S 19,934 $ 21,856 S 32,173 3,033 10,073 11,588 11,478 4,215 202 (292) (29) 15,341 5,418 274 21,789 6,864 164 (249) 796 219 441 (3,583) (4,780) 7,100 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization of property and equipment and capitalized content costs, operating lease assets, and other Stock-based compensation Other operating expense (income), net Other expense (income), net Deferred income taxes Changes in operating assets and liabilities: Inventories Accounts receivable, net and other Accounts payable Accrued expenses and other Unearned revenue Net cash provided by (used in) operating activities INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from property and equipment sales and incentives Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities Purchases of marketable securities Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from long-term debt and other Repayments of long-term debt and other Principal repayments of finance leases Principal repayments of financing obligations Net cash provided by (used in) financing activities Foreign currency effect on cash, cash equivalents, and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash (1,314) (4,615) 3,263 472 1,151 30,723 (3,278) (7,681) 8,193 (1,383) 1,711 38,514 283 738 18,365 (11.955) 1.897 (13,972) 9,677 (12,731) (27,084) (13,427) 2,104 (2,186) 8,240 (7,100) (12,369) (16,861) 4,172 (2,461) 22,681 (31,812) (24,281) 16,228 (1,301) (4,799) (200) 9,928 713 768 (668) (7,449) (337) (7,686) (351) 10,317 2,273 (2,684) (9,628) (27) (10,066) 70 1,922 4,237 2019 $ Year Ended December 31, 2017 2018 118,573 S 141,915 S 59,293 90,972 177,866 232,887 160,408 120,114 280,522 111,934 25,249 22,620 10,069 3,674 214 Net product sales Net service sales Total net sales Operating expenses: Cost of sales Fulfillment Technology and content Marketing General and administrative Other operating expense (income), net Total operating expenses Operating income Interest income Interest expense Other income (expense), net Total non-operating income (expense) Income before income taxes Provision for income taxes Equity-method investment activity, net of tax Net income Basic earnings per share Diluted earnings per share Weighted average shares used in computation of earnings per share: Basic Diluted 173,760 4,106 202 (848) 346 (300) 3,806 (769) (4) 3,033 S 6.32 S 139,156 34,027 28,837 13,814 4,336 296 220,466 12,421 440 (1,417) (183) (1,160) 11,261 (1,197) 165,536 40,232 35,931 18,878 5,203 201 265,981 14,541 832 (1,600) 203 (565) 13,976 (2,374) (14) 11,588 23.46 23.01 9 $ 10,073 $ $ 20.68 $ $ 6.15 S 20.14 S 480 494 487 500 493 504 See accompanying notes to consolidated financial statements. December 31, 2019 2018 ASSETS S Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Operating leases Goodwill 31,750 $ 9,500 17,174 16,677 75,101 61,797 36,092 18,929 20,497 20,816 96,334 72,705 25,141 14,754 16,314 225,248 Other assets 14,548 11,202 162,648 $ $ S 38,192 $ 23,66 6,536 68,391 9,650 23,495 17,563 47,183 32,439 8,190 87,812 39,791 23,414 12,171 Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term lease liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $0.01 par value: Authorized shares 500 Issued and outstanding shares -- none Common stock, S0.01 par value: Authorized shares - 5,000 Issued shares -- 514 and 521 Outstanding shares 491 and 498 Treasury stock, at cost Additional paid-in capital Accumulated other comnrehensive incama (lace 5 (1,837) 26,791 (1,837) 33,658 S 31,750 $ 9,500 17,174 16,677 asri anu cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Operating leases Goodwill 75,101 61,797 36,092 18,929 20,497 20,816 96,334 72,705 25,141 14,754 16,314 225,248 14,548 11,202 162,648 $ $ S 38,192 $ 23,663 6,536 68,391 9,650 23,495 17,563 47,183 32,439 8,190 87,812 39,791 23,414 12,171 Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other Unearned revenue Total current liabilities Long-term lease liabilities Long-term debt Other long-term liabilities Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, S0.01 par value: Authorized shares - 500 Issued and outstanding shares - none Common stock, S0.01 par value: Authorized shares - 5,000 Issued shares - 514 and 521 Outstanding shares 491 and 498 Treasury stock, at cost Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total stockholders' equity Total liabilities and stockholders' equity (1,837) 26,791 (1,035) 19,625 43,549 162,648 $ El 1 (1,837) 33,658 (986) 31,220 62,060 225,248 $ See accompanying notes to consolidated financial statements AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions) Common Stock Accumulated Additional Other Total Treasury Paid-In Comprehensive Retained Stockholders' Amount Stock Capital Income (Loss) Earnings Equity S 5 $ (1,837) $ 17,186 $ (985) $ 4,916 S 19,285 Shares 477 687 3,033 687 3,033 501 501 7 4,202 4,202 484 5 (1,837) 21,389 (484) 8,636 27,709 916 Balance as of January 1, 2017 Cumulative effect of a change in accounting principle related to stock-based compensation Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2017 Cumulative effect of change in accounting principles related to revenue recognition, income taxes, and financial instruments Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2018 Cumulative effect of change in accounting principle related to leases Net income Other comprehensive income (loss) Exercise of common stock options Stock-based compensation and issuance of employee benefit plan stock Balance as of December 31, 2019 IT III 10,073 912 10,073 (547) (547) 7 5,402 5,402 26,791 491 5 (1,837) (1,035) 19,625 43,549 7 7 TI 11,588 11,588 49 49 7 6,867 6,867 5 $ (1,837) S 33,658 498 $ (986) $ 31,220 $ 62,060 See accomninin lidotod finomai (3,583) (4,780) 7,100 (1,314) (4,615) 3.263 (3,278) (7,681) 8,193 (1,383) 1,711 38,514 283 472 738 18,365 1,151 30,723 (11.955) 1.897 (13,972) 9,677 (12,731) (27,084) (13,427) 2,104 (2,186) 8,240 (7,100) (12,369) (16,861) 4,172 (2,461) 22,681 (31,812) (24,281) 16,228 768 Inventories Accounts receivable, net and other Accounts payable Accrued expenses and other Unearned revenue Net cash provided by (used in) operating activities INVESTING ACTIVITIES: Purchases of property and equipment Proceeds from property and equipment sales and incentives Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities Purchases of marketable securities Net cash provided by (used in) investing activities FINANCING ACTIVITIES: Proceeds from long-term debt and other Repayments of long-term debt and other Principal repayments of finance leases Principal repayments of financing obligations Net cash provided by (used in) financing activities Foreign currency effect on cash, cash equivalents, and restricted cash Net increase (decrease) in cash, cash equivalents, and restricted cash CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on long-term debt Cash paid for operating leases Cash paid for interest on finance leases Cash paid for interest on financing obligations Cash paid for income taxes, net of refunds Assets acquired under operating leases Property and equipment acquired under finance leases Property and equipment acquired under build-to-suit arrangements (1,301) (4,799) (200) 9,928 713 1,922 21,856 $ (668) (7,449) (337) (7,686) (351) 10,317 32,173 $ 2,273 (2,684) (9,628) (27) (10,066) 70 4,237 36,410 S s 328 $ 854 S 875 3,361 647 381 200 119 957 39 194 1,184 10.615 881 7,870 13,723 1,362 9,637 3,541 3,641 See accompanying notes to consolidated financial statements. 37