017session_30017AMERITRADE - 30017 Corporate Finance...

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1 The Ameritrade case is available in the Library Course Reserves. Go to lib.unibocconi.it Course Reserves Search for course code 30017 Use your library login details to retrieve the PDF Please remember to bring a hardcopy printout of both the case and your writeup to class, so you have all data and calculations available at all times Homework 8: The assignment Your assignment is to provide a written analysis of the case. Keep in mind the rules for group assignments from the syllabus. We will discuss the case in class as indicated in the syllabus. All team members should be knowledgeable about the facts of the assigned case, as I will randomly solicit discussion from class members. To make things easier, all case exhibits are available in Excel format for download (see Webassign). While dealing with the decision problem at hand, your report should address the following questions: 1. What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? 2. What are the estimates of the risk-free rate and the market risk premium that should be employed in calculating the cost of capital for Ameritrade? 30017 Corporate Finance Lecture Slides, Academic Year 2015/2016 Session 17: Case study discussion – Ameritrade Hannes Wagner
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2 3. In principle, what are the steps for computing the asset beta in the CAPM for purposes of calculating the cost of capital for a project? 4. Ameritrade does not have a beta estimate as the firm has been publicly traded for only a short time period. There are various potential choices of comparable firms. What comparable firms do you recommend as the appropriate benchmarks for evaluating the risk of Ameritrade’s planned advertising and technology investments? 5. Using the provided stock price and returns data, as well as capital structure information, calculate the asset betas for the comparable firms.
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