FINM4000: Cash Conversion Cycle - Finance Assessment Answer

Finance Assessment Task

Part A: Company Financing

1. According to Source 2 how did Amazon’s Cash Conversion Cycle in 2014 compare to other retailers in that year? What does it say about Amazon’s working capital management?

2. According to Source 2 why is having a negative Cash Conversion Cycle important for a company wanting to experiment with investing in new products that could fail or succeed?

3. If Amazon couldn’t use cash to fund its new projects, what two financing options would they have available to them? Discuss what advantages and disadvantages these financing options would have for Amazon.

4. Based on Source 1 (Annual Report) what is Amazon’s Cash Conversion Cycle in 2018? How does this compare with the Cash Conversion Cycle in 2014 and what does it say about Amazon’s supplier relationships?

5. Based on Pages 6-14 of Amazon’s Annual Report

what do you believe are the three most significant risks facing Amazon in 2018? Are these risks systematic or unsystematic? Why?

6. Imagine that in 2007 you purchased an Amazon $1000 face value bond with a fixed annual coupon rate of 4.5% which matures at the end of 2020. Currently it is the end of 2019 and the bond has a yield to maturity of 5%. What would be the price of the bond today in 2019?

7. Consider Source 3. If you bought Amazon shares at the beginning of June 2014 and sold them at the beginning of June 2019, what would be your approximate holding period return? (Assume no dividends.) What does this suggest about the investments that Amazon made from 2014 to 2019?

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