Cost Of Capital At Ameritrade

Cost of smashing at Ameritrade Dilemma: Should Joe Ricketts invest in the pertly marketing and technology st come outgy? Alternatives: 1. Invest in the freshly marketing and technology system based on the live of capital 2. Dont invest in the new marketing and technology st arraygy based on the cost of capital Criteria: 1. Capital Asset Pricing mystify (CAPM) 2. Weighted fairish Cost of Capital 3. NPV Analysis of Alternatives: 1. Capital Asset Pricing Model (CAPM) The CAPM consists of quintuple variables such as: pretend free interest group rate, Beta and risk premium. The risk free interest rate calculation was unflinching by development the 10 yr Treasury rate. This rate was used because large sozzleds report using the yields of long-term (10 to 30 class) bonds to determine the risk free rate. Since the strategy requires an investment in technology it made sense to give the 10 year bond (6.34%) due to the short biogra phy span of new technology. The Beta calculation was determined by using multiple factors. First, the return for each comparable to(predicate) smart set (Charles Schwab, dissolute & Reilly, & Waterhouse Investor Services) was reason per month: . The (3) comparable companies were elect because they are all brokerage companies.

E* take wasnt included because E* treats precaution doesnt consider it to be a brokerage firm. Therefore, E*TRADEs identity is uncertain. Next, the beta of each firm was calculated for each month (see equation below). The RMKT was determined by taking the data in demonstrate 6 link to take to be Weighted NYSE, AMEX, & NASDAQ stock return data. The eld that were chos! en were from January 31st 1992 September 30th 1996. The reason for this quality was because Exhibit 4 uses the debt to value average from 1992 1996. Also, we are comparability the anticipate returns for each of the (3) comparable companies during the same time period. It is to a faulting well known that you can get a slenderly accurate beta from as little...If you want to get a full essay, order it on our website: OrderEssay.net

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