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Use the attached PDF article to do the below case...




Use the attached PDF article to do the below case write-up; Ameritrade?s potential investments are expected to yield cash flows that will accrue over the next several years. To determine the present value of these cash flows and thereby determine the attractiveness of the potential investments, a cost of capital is required. Your analysis of the ?Cost of Capital at Ameritrade Case Analysis? case should include well-articulated answers to the following questions: 1. What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? 2. Ameritrade does not have a beta estimate as the firm has been publicly traded for only a short time 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 planned advertising and technology investments? 3. Using the stock price and returns data in Exhibits 4 and 5, and the capital structure information in Exhibit 3, calculate the asset betas for the comparable firms. 4. What is your estimate of Ameritrade?s cost of capital? Be sure to explain carefully how you determine the inputs. Note that the Case Exhibits are provided for you as an Excel spreadsheet Additional Instructions To estimate equity betas, you will first need to calculate returns from the price and dividend data, accounting for stock splits. To calculate returns in the month of a stock split, convert the stock split information into a number as follows: x for y stock split = x/y (e.g. 5 for 4 stock split = 1.25). Then calculate returns: -If No Stock Split: -If x for y Stock Split


Paper#4171 | Written in 18-Jul-2015

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