Case Study

Executive Summary: As a deep-discount brokerage company, Ameritrade Holding Corporation (AHC) aims to spend in ads and expertise and techniques to grow its customers and, therefore, its earnings. This study aims to determine the risk of the planned project by evaluating the capital charge of the venture measured using the CAPM. A variety of variables must be assessed to determine each potential that could affect the outcome. Areas of emphasis consist of:

● Risk-free prices ● market catalog standard returns ● marketplace risk premiums ● the definition of acceptable comparable ● the measurement of investment betas

Challenges: ● The high cost of capital which requires a higher return to be profitable. Other firms have

a cost of capital around 9-15%. ● Ricketts strategy to implement technology enhancements and increased advertising may

need to be reevaluated. Since the cost of capital is higher, needing a higher return, then any large increase in spending should be reevaluated to ensure the benefits are higher than the cost.

● Projects need to be creating value and have a higher return than the project's cost. This will account for the project’s risk.