Cost of Capital at Ameritrade Free Essay, Term Paper and Book Report
Introduction
In todays business world, almost all decisions are based on how they affect the companys bottom line. When evaluating projects, firms look at risk, required rate of return and opportunity cost of capital. The Ameritrade Case is no exception. However, this case is different because it requires a decision based on the cost of capital for a company that has been public for only a short time. Little historical data stock data is available that could be used to determine an equity beta for Ameritrade (not enough data to perform a good regression analysis). This requires us to make some assumptions and use industry data to determine the cost of capital for Ameritrade.
Assumptions
The assumptions we used for our analysis are outlined in Table 1. Some basic assumptions we made are: this project is of average risk, the time horizon of the project is approximately 5 years, ignore tax implications of debt (as no tax rate is specified in the case), âdebt = 0, and Ameritrades debt = 0. Due to these basic assumptions, it can be shown that, for Ameritrade,
WACC = expected ......
Word Count: 1718
Page Count: 6.8 (250 words a page / double spaced)
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