Cost of Captial of Ameritrade Free Essay, Term Paper and Book Report
1. Introduction
The objective of this report is to estimate a reasonable cost of capital at Ameritrade. As Ameritrade intends to expand its business with the introduction of several ambitious plans (namely, reduce transaction costs to US$8/trade, US$100 million IT advancements and US$155 million advertising expenditure), it is important for the management to determine a reasonable cost of capital/discount rate for these indirect investments. The challenge in this case study is that as Ameritrade was only listed for a few months, there was not enough historical data that we can collect to calculate the equity beta. We will be adopting the comparable company method to estimate Ameritrades beta and it will be explained in detail in the latter part of the report.
2. Capital Asset Price Model (CAPM)
We will make use of CAPM to estimate Ameritrades cost of capital. It is important to note that Ameritrade did not have any debt on its balance sheet. As such, the firm is unlevered and we will need to take this into consideration when calculating the cost of capital using the CAPM. The ......
Word Count: 1997
Page Count: 7.9 (250 words a page / double spaced)
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