Cost Of Capital At Ameritrade

2201 Words Dec 13th, 2015 9 Pages
Cost of Capital at Ameritrade
Introduction:
Ameritrade is a pioneer in the deep-discount brokerage firm market that was formed in 1971. In March 1997, Ameritrade raised $22.5 million in a stock IPO allowing the company to continue its long tradition of adopting the latest advances in technology, and substantially increasing advertising to build its brand and improve market share.
Joe Ricketts, Chairman and CEO of Ameritrade Holding Corporation, wanted to improve the company’s competitive position in the deep-discount brokerage market. To do so, he was considering significant investments in technology and marketing.
Factors to be considered:
The Ameritrade IPO had only been issued in March 1997. Therefore, in order for Ameritrade to analyze its potential investments, it needed to compare the Betas of other similar companies since calculating a Beta based on its own stock price was not yet feasible. In order to do such an analysis Ameritrade needed to determine its type of business. It had two options: a traditional full service broker or a deep discount online brokerage firm.
For the analysis of this report, we determined that Ameritrade was an online brokerage firm. Its competitors in this sphere were Charles Schwab, E-trade, Quick and Reilly, and Waterhouse Investor Services. Additionally, we did not use the stock price of E-trade in our analysis, as there were insufficient price data for E-trade to calculate risk accurately.
Ameritrade needed to calculate the…

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