Ameritrade - Strategic Evaluation

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1) What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why?

Strategic evaluation

2)Ameritrade does not have a beta estimate as the firm has been publicly traded for only a short time period. What comparable firms do you recommend as the appropriate benchmarks for evaluating the risk of Ameritrade’s planned advertising and technology investments.

Beta: 1) which firms to use as a benchmark and why
2) Calculate beta for comparables

3)Using the stock price and returns data in Exhibits 4 and 5, and the capital structure information in Exhibit 3, calculate an estimate of Ameritrade’s cost of capital.

Class next week

4)How should Joe Ricketts, the CEO of Ameritrade, view the cost of capital estimate you have calculated? Do you believe the project should the project be undertaken?

Strategic evaluation + class next week

Large expenditures relative to existing capital- finance considerations, overleveradged? Generate the revenue necessary—run the stats on expenditures verses vapital

Can they realize the economies of scale

Competitor response to expenditures

How do they know that the marketing campaign will be effective

Revenues- fees and interest

Competition- lower fees, higher interest

Risk: recession lack of trading, lower revenues

Full service- Ameritrade- non-diversified risk, struggle to keep up with competition in downturn economy

Planned Investments and Cost of Capital

Cost cutting- reduced commission, can the cuts cover the costs, Concern: price war


Run different models on different discount rates
Run different models compared with various companies
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