Cost of Capital at Ameritrade

Managing Corporate Capital Investment and Capital StructureCase1Cost of Capital at Ameritrade1.Ameritrade does not have a of import enter as the firm has been publicly traded for only a short condemnation period. Exhibit 4 provides various choices of comparable firms. What comparable firms do you recommend as the appropriate benchmarks for evaluating the risk of Ameritrade?s mean investments? Why?We recommend using the following firms in the tax write-off Brokerage Industry: Charles Schwab Corporation, E- disdain, Waterhouse Investor Services, and Quick and Reilly Group, in order to estimate the Beta of the firm. We have chosen these four firms as comparables to Ameritrade because they contend within the same realm of business as Ameritrade. We unravel this conclusion based off several summonss from the text. The first reference demonstrates Ameritrade as a discount broker by stating, ?Full-service brokers were slight sensitive to market movements than deep-discount brokers like Ameritrade.? Another assertion which expound Ameritrade?s competition is, ??competitors such as Charles Schwab and E*Trade did not follow Ameritrade?s lead and try to fight on price.? These arguments along with others from the text provide convincing manifest that compel us to choose both the discount securities firm house industry and Charles Schwab, E*Trade, Waterhouse, and Quick and Reilly Group, in order to accurately measure Beta and likewise risk.

2.



Using the stock price and returns breeding in Exhibits 5 and 6 and the capital structure information in Exhibit 4 estimate the equity genus Beta ?s, asset beta ?a and the cost of assets, ka, for (i) discount brokerage firms and (ii) investment services firms as comparable groups, assuming (i) debt beta=0 and (ii) debt beta = 0.25.

Table A Charles SwabQuick and ReilyWaterhouseBs2.2972.20423.1899Debt0.0800.38Equity0.9210.62i. Ba when Bd =02.113242.20421.9777382.0983927ii. Ba when Bd = 0.252.133242.20422.0727382.136726Rf6.61%Rm-Rf7.2%Ka when Bd = 021.7184272%ka when bd = 0.2521.9944272%Table B A G EdwardsBearStearnsMerrill LynchMSDWPaine WebberRaymond JamesBs1.44951.68931.82262.09241.76481.4489Debt00.50.520.530.530.04Equity10.50.480.470.470.96i. Ba when Bd =01.44950.844650.8748480.9834280.8294561.3909441.062137667ii.

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