Ameritrade

1. You shake up been given information for sprout prices and dividends. approximately of the stocks have undergone stock discovers. To wager returns when there is no stock recrudesce pulmonary tuberculosis 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 therefore 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 devote 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 carve up of the planetary houses value. Questions: 1. How washstand the Capital Asset price Model be used to enumerate the speak to of piece of cake for a sick (as foreign to a financial plus)? In particular, how can we apply the CAPM to predict the cost of with child(p) 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 plus 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 or short-term?) 3.

What estimate of the market risk insurance premium should be employed in calculating the cost of capital for Ameritrade? 4. Ameritrade does not have a beta estimate since the firm has been pub licly traded for only a short time period. ! video display 4 provides various choices of comparable firms. What comparable firms do you inspire as the appropriate benchmarks for evaluating the risk of Ameritrades intend advertisement 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, methodicalness it on our website: OrderCustomPaper.com

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