Ameritrade

1. You shake up been given information for shopworn prices and dividends. approximately of the stocks have undergone stock discovers. To wager returns when there is no stock recrudesce utilise r_t=(P_t-P_(t-1)+D_t)/P_(t-1) where P_t is the price at time t and Dt is the dividend. When there is an x for y stock split because you should calculate returns as r_t=(?x/y P?_t-P_(t-1)+?x/y D?_t)/P_(t-1) For example, in the case of a 5 for 4 stock split x/y=1.25. 2. You do not have data on debt returns for the comparable companies. A common rule of riff that is utilise in physical exertion is to assume that the debt of these companies is jeopardy bighearted (has a beta of zero). This is a good assumption when debt represents a fairly small atom of the secures value. Questions: 1. How washstand the Capital Asset determine Model be used to enumerate the speak to of cinch for a sick (as foreign to a financial addition)? In particular, how can we apply the CAPM to predict the cost of uppercase when we do not even go to bed how the investment in the project will be financed (debt vs. equity)? (Here you speak out in terms of the risk of the project, or project beta, or asset beta). 2. What estimate of the risk-free rate should be diligent in calculating the cost of capital for Ameritrade? (Hint: What is the duration of the project long-term or short-term?) 3.

What estimate of the market risk amplitude should be employed in calculating the cost of capital for Ameritrade? 4. Ameritrade does not have a beta estimate since the firm has been publicly traded for only a short tim e period. break 4 provides various choices ! of comparable firms. What comparable firms do you urge as the appropriate benchmarks for evaluating the risk of Ameritrades intend advertize and technology investments? 5. Using the data provided in the case, calculate the asset betas for the companies that are appropriate comparables for Ameritrade. 6. What is your estimate for the cost of capital that Ameritrade should use for its planned investments?If you want to get a profuse essay, order it on our website: OrderCustomPaper.com

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