Ameritrade Case Background In his effort to increase returns for Ameritrade shareholders and make Ameritrade the largest brokerage firm worldwide by trading volume‚ Joe Ricketts‚ Chairman and CEO of Ameritrade‚ seeks to improve Ameritrade’s competitive position in the deep-discount brokerage industry by taking advantage of emerging economies of scale. To attract more investors‚ his strategy involves‚ first‚ cutting trade commissions from the existing rate of $29.95 per trade to $8.00. Second
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MBA 203: Problem Set 4 Cost of Capital at Ameritrade Due: Wednesday‚ November 28‚ 2012‚ by 9:00 a.m. The course material covered in weeks 4 and 5 should be sufficient for doing this problem set. The questions below are for the Cost of Capital at Ameritrade case in your course packet. You can find the data for this case on the course website in a spreadsheet named Ameritrade.xls. Please turn in your problem set solutions by posting them to bSpace as an Excel file or pdf file. Upload a single solution
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MGT 6060 Financial Management Summer 2011 Prof. Jonathan Clarke Case 3: cost of Capital at Ameritrade Group Members: Kristin Fadeley Venkata Kuppusamy Benedikt Schroeder Yogesh Vasisht Manoj Vattakkunnel Question 1: What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? In a nutshell‚ Ameritrade’s management should do a cost-benefit analysis‚ comparing proposed investments into technology
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Spring 2010 Ameritrade - Harvard Case Study Background: Ameritrade Holding Corporation is securities brokerage services and technology-based financial services firm from the United States. The company was founded in 1971 and is headquartered in Omaha‚ Nebraska. “Ameritrade MERITRADE for self-directed retail investors; TD AMERITRADE Institutional that provides brokerage and custody services; trading platforms that enables research and analysis; a suite of education
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Ameritrade Cost of Capital FIN 700 11/14/06 Cohort B-Team 3 Introduction Ameritrade CEO Joe Ricketts contracted our firm‚ B3 Investment Consultants‚ to provide quantitative analysis of a prospective project – entering the deep discount brokerage market. Based on the directives given by Mr. Ricketts‚ the primary focus of our analysis has been to derive an accurate estimate of the weighted average cost of capital (WACC) for this
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Executive Summary: In mid-1997 Joe Ricketts the Chairman and CEO of Ameritrade‚ decided that Ameritrade’s new mission would be to become “the largest brokerage firm worldwide based on the number of trades.” In order to accomplish this mission Ameritrade would need to invest significantly in technology and advertising. This strategy would require large expenditures relative to Ameritrade’s existing capital. In order to gauge the financial impact of these large expenditures‚ there needed to be
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Questions and Analysis 1. What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? a. Opportunity Cost – Will Ameritrade benefit from spending money on advertising and technology upgrades more than the next best alternative and more than reinvesting the money. b. Debt-to-Equity Ratio – If this ratio is high then Ameritrade may be able to generate more equity and increase earnings by more than the cost then
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Ameritrade Case Writeup questions (do all this as if it is June 1997‚ date of the case): 1. What is Ameritrade’s capital structure? Because there is no preferred stock or long term debt‚ Ameritrade is a 100% equity firm. 2. What is Ameritrade’s cost of equity capital? CAPM= (.0643)+ (1.8264)(.188-.0559)=.2902=29.02% Return on Market=(899.470-757.12)/757.12=.188 Beta calculation on Attached Excel Spreadsheet. 3. What is Ameritrade’s cost of debt capital? Because there is
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25.6% | Next we had to find appropriate values for Beta D and Beta E. For Beta D‚ we assumed that Ameritrade holds a Corporate A debt rating for their bonds which is 0.21 (Journal of Financial Economics‚ July 1963-December 1991). After this‚ the BE (PROJECT) needed to be computed. Charles Schwab and Quick & Reilly were used as comparable for determining the BE (company) for TD Ameritrade. After running a Regression in Excel‚ it was determined that both Charles Schwab and Quick & Reilly
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1997‚ Ameritrade has been growing rapidly in sales while maintaining higher than 40% ROE(on average) during 1975-1996. In March 1997‚ Ameritrade filed IPO on NASDAQ (AMTD) and raised $22.5 million. The main purpose of the IPO is to allow the company to continue its growth. Therefore‚ The CEO & chairman‚ Joe Ricketts‚ has approached our firm and eventually retaining our service to help him evaluate his substantial investments in technology and advertising. While the investment is being expected to
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