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Ameritrade

Cost of Capital at Ameritrade
Christoph Schneider
Ross School of Business

Basic assumptions
Tax Rate
Beta Debt
Leverage (D/V)
Leverage (D/E)

1997
35.5%
0.25
0.00
0.00

1996
39.4%

1995
35.1%

Average
36.7%

Comparable companies’ βE
Tax Rate
Beta Debt
Leverage (D/V)
Leverage (D/E)

Discount Brokerage Firms
Charles Schwab
Quick & Reilly
Waterhouse Securities

1997
35.5%

1996
39.4%

β E from
Jan'92-Dec'96
2.30
2.20

β E from all months
2.35
2.30
1.40

0.25
0.00
0.00 β E from
Jan 92-Sep 96
2.26
2.36
3.19

1995
35.1%

Average
36.7%

Comparable companies’ leverage
Tax Rate
Beta Debt
Leverage (D/V)
Leverage (D/E)

Discount Brokerage Firms
Charles Schwab
Quick & Reilly
Waterhouse Securities

1997
35.5%

1996
39.4%

1995
35.1%

Average
36.7%

0.25
0.00
0.00 β E from
Jan 92-Sep 96
2.26
2.36
3.19

β E from
Jan'92-Dec'96
2.30
2.20

Debt/Value
0.08
0.00
0.38

Equity/Value
0.92
1.00
0.62
Average

Beta of Assets (β U ) β TXS = β D β TXS = β U
2.19
2.13
2.20
2.20
2.37
2.07
2.25

2.14

Comparable companies’ βU
Tax Rate
Beta Debt
Leverage (D/V)
Leverage (D/E)

Discount Brokerage Firms
Charles Schwab
Quick & Reilly
Waterhouse Securities

1997
35.5%

1996
39.4%

1995
35.1%

Average
36.7%

0.25
0.00
0.00 β E from
Jan 92-Sep 96
2.26
2.36
3.19

β E from
Jan'92-Dec'96
2.30
2.20

Debt/Value
0.08
0.00
0.38

Equity/Value
0.92
1.00
0.62
Average

Beta of Assets (β U ) β TXS = β D β TXS = β U
2.19
2.13
2.20
2.20
2.37
2.07
2.25

2.14

Ameritrade’s βU and βE
Tax Rate
Beta Debt
Leverage (D/V)
Leverage (D/E)

Discount Brokerage Firms
Charles Schwab
Quick & Reilly
Waterhouse Securities

1997
35.5%

1996
39.4%

1995
35.1%

0.25
0.00
0.00 β E from
Jan 92-Sep 96
2.26
2.36
3.19

β E from
Jan'92-Dec'96
2.30
2.20

Debt/Value
0.08
0.00
0.38

Equity/Value
0.92
1.00
0.62

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