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a10ameritrade - Autumn 2011 Managerial Finance Prof...

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Autumn 2011 Managerial Finance Prof. Francisco Pérez-González The Cost of Capital at Ameritrade Read and prepare: The Cost of Capital at Ameritrade (in the course reader). Big picture question: What cost of capital should Ameritrade use in evaluating its expansion? Questions: 1. What comparable firms should be used as the appropriate benchmarks for evaluating the risk of Ameritrade’s planned investments? 2. What is the estimate of the (a) risk-free rate and (b) market risk premium that should be employed in calculating the cost of capital for Ameritrade? 3. Using the equity betas and the capital structure information in Exhibit 4, calculate the unlevered betas for each comparable firm identified as an appropriate benchmark. What beta should Ameritrade use? Why? Note: equity betas are included in Exhibit 4 in the data exhibits
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