HBS AMERITRADE CORPORATE FINANCE CASE STUDY SOLUTION

In my opinion, we should use the risk-free rate equal to yield of year US governmentsecurities, because it is long-term capital investment. The project, being mostly about technology advancements, would not last longer than 5 years to implement therefore making the 6. In fact, Ricketts main aim is that of maximizing shareholder value and if the expected returns are higher than the WACC, he is going to invest, even if there is a chance of bankrupting the firm. Size px x x x x Monthly Returns for the three comparable Exhibit 2.

To begin, the returns of the companies used to calculate beta were between and , which is encompassed in the average annual returns for the time period of The data provided by our analysis suggest that Ameritrade should implement the investment strategy only in the case of a very high return, that is only if the expectation on return exceeds the cost of capital. I can recall only one example: In the US this kind of risk iscomparatively low. ANALYSIS The are some relevant factors that Ameritrade should take into consideration when evaluating the investment; first of all the riskiness of the whole operation, the accounting of which requires the estimates of the expected return and of the cost of capital. The figure below may help tosummarize:

hbs ameritrade corporate finance case study solution

But in Ukraine it will be much higher because of unstable economy,government policy and laws. The project, being mostly about technology advancements, would not last longer than 5 years to implement therefore making the 6. Log In Sign Up. I shall try to finish Friendly Cards in time. Start Page 1 2 solktion.

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A cost of capital is a weighted average of the cost of debt and equity. Additionally, the 3 or 6-month Treasury bill would not allot for the project to be completed on time while soltuion year treasury bond is too much time since the technology industry is ever changing.

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I appreciate your thoughtfulness. We use market value proportionsof debt and equity see CAPM, p. The market value was used rather than the book value because the market value better reflects the current economic stury of debt and equity outstanding.

Stock firms and Market returns. Typically xtudy use the stock market return minus U. In this case we will learn how to determine anappropriate rate. Of course our evaluation is affected by assumption made on the choice of the industry and comparable firms, the tax rate considered and the choice of the risk free rate measurement.

Ameritrade Case

The company also has to ensure that competitors do not follow its lead in the market and try to compete on prices, otherwise nbs whole strategy would go to waste. Home Topics Documents Ameritrade Case. We are always happy to assist you. The CAPM provides a useful framework for determining the discount rate by definingthe risk premium above. Comparable companies profile data Exhibit 4: Textbook materialexplaining the CAPM is available on my website.

Ameritrade needs a cost of capital to evaluate new projects. You will receive a link to create a new password.

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(PDF) Cost of Capital at Ameritrade | Marco Fazio –

Ameritrade was proposing to embark on a strategy to. Stock returns over market returns. In the US this kind of risk iscomparatively low. The average value is used as well because the current capital structure may not be the target capital structure.

hbs ameritrade corporate finance case study solution

In principle, what are the steps for computing the asset beta in the CAPM? Thank you for visiting our website and your interest in our free products and services.

hbs ameritrade corporate finance case study solution

Perhaps we will have another period of world war, or terribleglobal market conditions. Wolution the projects are in the future, we should use current at the time of the case yields, not historical rates.

Waterhouse Investor Services — 3. If Ameritrade analysts use a discount rate that is too high, good projects may be rejected. The conclusion is that the company is entirely financed by equity. Our analysis reveals that the estimated WACC is of Please see spreadsheet work. Finamce we are talking about risks, we should think about vase and versatile non-systematic?

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