Ameritrade HBS Case Essay Sample
1. What is Ameritrade’s capital construction?
Because there is no preferable stock or long term debt. Ameritrade is a 100 % equity house.
2. What is Ameritrade’s cost of equity capital?
CAPM= ( . 0643 ) + ( 1. 8264 ) ( . 188- . 0559 ) = . 2902=29. 02 %
Tax return on Market= ( 899. 470-757. 12 ) /757. 12= . 188
Beta computation on Attached Excel Spreadsheet.
3. What is Ameritrade’s cost of debt capital?
Because there is no involvement disbursal in 1997. Ameritrade has no cost of debt.
4. What is Ameritrade’s WACC?
WACC= ( 1 ) ( . 2902 ) =29. 02 %
5. Ameritrade is sing 2 undertakings:
a. A $ 100MN betterment of engineering undertaking and
B. A $ 100MN selling undertaking
Assume the engineering betterment undertaking ( a ) reduces “”Commissions and Clearance” and “Communications” by half for the foreseeable hereafter so the accomplished costs would be half of whatever growing they might hold otherwise had. For illustration. wholly hypothetically. if you believed that Communications costs would hold grown from 5. 623. 468 to 6. 500. 000 in the following twelvemonth without the engineering investing. the figure after the engineering investing would be $ 6. 500. 000 * 50 % or $ 3. 75MN. Assume the selling undertaking would increase grosss by $ 5MN a twelvemonth for the foreseeable hereafter.
Make some sensitiveness analysis of the NPV of each of these undertakings utilizing different price reduction rates for the hard currency flows generated ( seek the price reduction rates from 2. 3 and 4 above every bit good as a few others ) . What is the appropriate price reduction rate for the engineering undertaking? What about the selling undertaking? Should they be undertaken? How sensitive is the determination to the price reduction rate ( i. e. will little alterations in the price reduction rate alter the go/no-go determination ) ?
Growth Rate from 95-96= ( 2. 530. 642-2. 516. 796 ) /2. 516. 796= . 550144 % Growth Rate from 96-97= ( 3. 320. 262-2. 530. 642 ) /2. 530. 642=31. 2 % Because the historical growing rates are non brooding of the hereafter since there was such a leap in the growing in 1997. we are traveling to presume that the future growing rate will be ______ .