...Cost of Capital at Ameritrade: 1. What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why? When deciding whether or not to invest in the proposed advertising program and technology upgrades, Ameritrade should consider the following four key factors: 1. Cost of Capital: It is important that Ameritrade understand the risk associated with this project’s cost of capital. Ameritrade should look at the cost of capital to determine if the expected return on this project will be equal to or greater than investing this capital elsewhere. 2. Net present value of the cash flow: After looking at the cost of capital, Ameritrade will want to look at the cash flows for the project and determine the net present value of the cash flows. This will help Ameritrade understand if this is where they want to invest their money, but understanding how much they will receive annually from this project. 3. Accurate discount rate: Ameritrade will want to know if this project can deliver more than the discount rate. It is important to choose an accurate discount rate since an overstatement or understatement could lead to the wrong investment decision because of using an incorrect benchmark. 4. Debt to Equity ratio: Ameritrade should look at their debt to equity ratio compared to other companies in their industry. Since Ameritrade could potentially compare against two different industries, they will want to...
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...Dear Andy! Sorry for my second delay with the case – it is all the preparation to university exams. I shall try to finish Friendly Cards in time. So I used to make parallels from cases to our real life and economic situation in Ukraine. At the time we do not have such companies as Ameritrade in Ukraine, because this kind of business does not have it’s customers right now. This is a new thing to our country, and as usual, all the new things are taken distrustfully. I can recall only one example : it is FOREX, but it actually deals with the currency exchange rates, buying and selling currency. The only same thing – all the processes are being held online. 1. What factors should Ameritrade consider when evaluating the proposed advertising program and technology upgrades? Ameritrade needs a cost of capital to evaluate new projects. Firms maximize their value by taking all positive NPV projects. [pic] [pic] [pic] is the expected cash flow in period i [pic] is the discount rate To calculate an NPV, we need a discount rate. In the A-Rod case we used 8%. In the Ocean Carriers case we used 9%. In this case we will learn how to determine an appropriate rate. If Ameritrade analysts use a discount rate that is too high, good projects may be rejected. If they use a discount rate that is too low, bad projects may be accepted. Also the Ameritrade analysts should consider, that their company’s internal discount rate was often used...
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...Corporate Finance Case Study Solution 1. What factors should Ameritrade consider when evaluating the proposed advertising program and technology upgrades? Ameritrade needs a cost of capital to evaluate new projects. Firms maximize their value by taking all positive NPV projects. is the expected cash flow in period i is the discount rate To calculate an NPV, we need a discount rate. In the A-Rod case we used 8%. In the Ocean Carriers case we used 9%. In this case we will learn how to determine an appropriate rate. If Ameritrade analysts use a discount rate that is too high, good projects may be rejected. If they use a discount rate that is too low, bad projects may be accepted. Also the Ameritrade analysts should consider, that their company’s internal discount rate was often used as 15%, but some managers felt appropriate the rate of 8-9%. At this time, the external discount rate, used by Credit Swiss First Boston was 12%. Good observation. So actually computing the NPV earlier, Ameritrade analysts accepted only the best projects which fitted their high requirements. Now at the end of your analysis, we see that Ameritrade has a cost of capital close to 22%. This high hurdle rate means that Ameritrade should only accept projects with a very high potential rate of return (as long as they are of similar risk levels). 2. How can the Capital Asset Pricing Model (CAPM) be used to estimate the cost of capital for a real investment decision? (Note: A real investment decision here is contrasted...
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...1. What factors should Ameritrade’s management team consider when evaluating the proposed advertising program and technology upgrades? How significant are these factors from a risk perspective? Based on the case, we know the company Ameritrade Holding Corporation is a deep-discount brokerage, and the company’s proposed strategy is to increase the customer base by being a low-cost provider against its competitors. The company plans to invest more towards technology and advertising, and cut costs to improve the firm’s service, capacity, and customer awareness. If Ameritrade should go forward with this investment, it’s prudent to consider some factors. From a risk perspective the company should calculate the cost of capital as a basis for project evaluation. Ameritrade should also calculate the net present value (NPV) to determine the costs and benefits of the proposed investments. When calculating the NPV we should be aware of choosing the appropriate discount rate, which is the most important factor in the formula. Using too high or too low a discount rate can increase the uncertainty of future cash flows. Lastly, the company should also consider cash flows when evaluating the investment. If a company wants to start a new project or investment, cash will be the biggest determining factor. The CEO Joe Ricketts strongly believed his company can do this investment, however, his management team does not have enough confidence that they can get the higher expected return. Thus, at...
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...DUKE UNIVERSITY Fuqua School of Business FINANCE 251F/351 Individual Assignment #1 Cost of Capital at Ameritrade Prof. Simon Gervais Spring 2010 – Term 1 In this case, you have to use data from comparables to estimate the cost of capital at Ameritrade. The process involves a few stages that this handout will guide you through. First, we need to determine which set of firms to use as comparable firms. You should try two different sets. The first set will include three discount brokerage firms: Charles Schwab Corp, Quick & Reilly Group, and Waterhouse Investor Services.1 The second set will include six investment services firms: A G Edwards, Bear Sterns, Merrill Lynch, Morgan Stanley Dean Witter, Paine Webber, and Raymond James Financial. Stock price and return data for these nine firms are provided in a separate spreadsheet that you can download from the course schedule at www.duke.edu/∼sgervais. In fact, this spreadsheet contains all six exhibits contained in the case. To estimate the equity beta for each of these firms, you will need to perform a regression of their past returns on past market returns (only the slope of this regression is useful for your analysis, i.e., there is no need to calculate/report on anything else). For this purpose, let us use monthly data from January 1992 through December 1996, that is, five years of monthly data as is the norm in practice.2 As you will see in Exhibit 5, the data for the discount brokerage firms includes stock price, dividend and stock split...
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...Ameritrade Case Analysis Question #1: Ameritrade is planning on spending $155M in the next two fiscal years on advertising and $100M on technology upgrades. Management would need to consider if this large capital investment would directly result in future cash flows large enough to offset these investments at a rate that would satisfy the debt owners and shareholders. Management would need to determine the rate of return for these investments and compare this to the cost of capital, calculated using betas from comparable companies to determine accurate relationships to market fluctuations. If the rate of return for the project is less than the cost of capital, management can conclude that the investment would be more wisely spent on other projects. Additionally, they would need to determine the time required for the investments to effectively result in future cash flows through calculating the IRR. Since Ameritrade revenues are strongly influenced with downturns or upturns in the market, it would be advisable for them to analyze future market trends to determine whether this investment would yield positive results. Calculating Ameritrade’s beta would allow them to determine how at risk they are to trends in the market. Question #2: The CAPM states that an investor’s expected rate of return equals the risk free rate plus the market risk premium weighted by beta. Since managers are expected to make decisions that add to shareholder value, projects that do not provide a return...
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...of this paper, prepared by Jessica Chan under the supervision of Robert F. Bruner is about analyzing the companies Coca Cola and Pepsi after Pepsi has announced a merger with Quaker Oats Company with a deal at around $14 billion. With this deal Pepsi would have access to 83.6% of the sport drink market and around 33% of the U.S. noncarbonated-beverage market, followed by Coke with 21%. The paper wants to answer the questions how the latest announcement of Pepsi has an effect on the two companies´ prospects for value creation by showing the company background of both companies, giving a briefly industry overview of the beverage market and competitive events and establishing a financial comparison, especially with ratio and economic profit analysis. In the world Coca Cola and Pepsi have towered as the two leading brands of beverages. In the year 2000, Coca Cola was the largest manufacturer, distributor, marketer of soft-drink concentrates and syrups in the world and its market value reached $110.01 billion. On the other side Pepsi was a $20 billion worth company in 2000, acting in the snack food, soft drink and noncarbonated beverage market. Both companies have reached worldwide expansion of their markets, which include a large product range of beverages, apparel and paraphernalia with their respective logos. Both have grown into longstanding global and social industry leaders. Coca Cola´s annual sales were $20.5 billion which were earned also through a variety of noncarbonated-beverage...
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...(Room 204 Bryan Bldg.)[1] II. Instructor Daniel T. Winkler Office: 324 Bryan Bldg. Phone: 256-0122 E-mail: dt_winkler@uncg.edu Blackboard: http://blackboard.uncg.edu Office Hours: 5:15 pm – 6:15 pm M, 11:15 am – 12:15 pm W, or by appointment III. Prerequisites Prerequisites: MBA 605, 617; Co-requisite is MBA 620 IV. Course Materials Douglas R. Emery, John D. Finnerty, and John D. Stowe. Corporate Financial Management, 3rd Ed., Prentice Hall Publishing (Pearson), 2007. ISBN: 9780132278720. Harvard Business Review Cases (HC) purchased and downloaded online at: http://harvardbusinessonline.hbsp.harvard.edu/b02/en/cases/cases_home.jhtml. Case ordering numbers are given in parentheses next to each case in the Tentative Schedule. HP (Hewlett Packard) 10 B II, 17BII financial calculator or the equivalent. V. Course Description and Purpose The UNCG Graduate Bulletin describes MBA 625 as follows: "Finance in the strategic management process; corporate strategies and shareholder value creation, financing decisions, distribution policy, and long-term investment decisions.” The learning outcomes from this course are as follows: 1. Recognize the role played by the finance function in developing a global strategic plan. 2. Evaluate the extent to which...
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...Introduction…………………………………………………………………….…….p. 3 Trends in the Organic Foods and the Impact on Whole Foods…………………........p. 3 Application of Porter’s 5 Forces Model………..…………………………….............p. 4 Most Significant Environmental Threat and Whole Foods Combat ………………...p. 6 SWOT Analysis….…………………………………………..………………........…p. 7 Sustaining Competitive Advantage...…………………………………...….………..p. 8 Summary….………………………………………………………….………..…….p. 8 References.…………………………………………………………..……………....p. 10 Whole Foods Market Introduction John Mackey cofounder and Chief Executive Officer (CEO) founded Whole Foods in 1980 with the purpose of providing organic foods to the grocery shopping public. This started a movement over the next 30 years that has brought organic foods to the common shoppers in many markets around the U.S. that had only been previously serviced by smaller health food stores or by their local grocery chain. The success of Whole Foods moving forward will be how they can succeed and maintain their profitability when unemployment remains high and Americans have less disposable income. This essay will look at several factors of Whole Foods, including latest trends, the competitive environment in the grocery industry, environmental threats, SWOT analysis of the business operations and strengths that must be leveraged to maintain a competitive advantage. Trends in the Organic Foods and the Impact on Whole Foods As the public has become increasingly aware of the potential negative impact of additives...
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...American Finance Association Limited Arbitrage in Equity Markets Author(s): Mark Mitchell, Todd Pulvino, Erik Stafford Source: The Journal of Finance, Vol. 57, No. 2 (Apr., 2002), pp. 551-584 Published by: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/2697750 Accessed: 08/01/2010 15:26 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/action/showPublisher?publisherCode=black. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Blackwell Publishing and American Finance Association...
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...Problem Solution: Remington Peckinpaw Davis Inc. Remington Peckinpaw Davis began more than 35 years ago as a trading firm. RPD has since been a Wall Street force to be reckoned with. The company was founded by legendary Wall Street buccaneer Sam Remington, who was instrumental in shaping the stock market as it exists today. RPD was successful by targeting the 2% of American families who hold 80% of the country’s assets. This strategy that served the company well through the early 1990s was not faring so well by the mid-1990s. A new layer of wealth was created which in turn created new target audience for RPD and for their competitors. In 2005, RPD developed their first attempt at an online trading site called eRPD. The site has had major issues and a multitude of customer complaints. The following paragraphs, and accompanying tables, will review the problem RPD is facing and offer a potential solution for its executive leadership team. Describe the Situation Issue and Opportunity Identification RPD started over 35 years ago. It has since focused on America’s richest families however, the progress of the internet and the recent real estate booms, there has been a lot of change and RPD must also change if it wishes to remain successful. RPD has hired many ambitious employees who, with their knowledge and understanding, can help RPD move forward in its next challenge: eRPD. RPD wants to take this new idea for eRPD and create an internet site that will allow their customers...
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...decisions is the process of valuation, which will be emphasized throughout the course. Topics include criteria for making investment decisions, valuation of financial assets and liabilities, relationships between risk and return, capital structure choice, payout policy, the effective use and valuation of derivative securities (futures, options), and risk management. 1 COURSE MATERIALS Textbook The textbook for the course is: Corporate Finance (plus MyFinanceLab), Jonathan Berk and Peter DeMarzo, 3rd ed., Pearson - Prentice Hall, 2014. (SBN-10: 0-13-342415-4; ISBN-13: 978-0-13342415-7) There are several options for accessing the book and MyFinanceLab. You can purchase the book with MyFinanceLab. You can purchase the e-book and MyFinanceLab. You can purchase or rent the book, and purchase MyFinanceLab separately. Please see the last page of this syllabus for details for details on registering for MyFinanceLab. Other required readings are listed in the syllabus and made available through Canvas or Study.net. Slides PowerPoint slides for all of the class sessions will be printed and handed out in class. The slides are also available on Canvas. 2 Cases Cases are available on Study.net which can be accessed through Canvas. Case-related material, if any, will be made available on Canvas. Additional Material...
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...This version: 7/16/2015 College of Business Administration Loyola Marymount University MBAF 614: Financial Analysis & Strategy Fall 2015 Instructor: Dr. David Offenberg Office: Hilton 313 Phone: (310) 338-2903 E-mail: doffenberg@lmu.edu Office Hours: Tuesday, 4:00 – 6:00 p.m. (or by appointment) Class time: Tuesday, 7:15 - 10:00 p.m. (HIL 023) Course Overview: The purpose of this course is to study the impact of corporate financial strategy on shareholder wealth. In essence, this course covers the fundamentals of MBAA 608 with a lot more depth. Throughout the semester, we will examine real situations that were faced by real chief financial officers. In the end, you should have a much better appreciation for the role of the CFO in keeping the corporation afloat. Method: This course is taught via case studies supported by lectures. Class sessions begin with a studentled analysis of the assigned case. The remainder of the class period will be dedicated to further analysis of the case. Students have substantial responsibility (and incentives) for coming to class prepared to engage in active discussion. Each student is expected to work in a team to analyze the cases. Readings: The textbook for the course is: Case Problems in Finance, by Kester, Ruback and Tufano, Twelfth Edition, Publisher: McGraw Hill- Irwin. The bookstore will not carry the book so you must order it online. The MBAA 608 textbook is also a useful reference, but not required (Brigham...
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...Strategic Profile History According to CIBC Mellon, the company is built on the strengths and traditions of their two parent companies, CIBC and BNY Mellon. With these two companies combined expertise, they were able to provide a unique advantage of delivering intelligent solutions that are global in scale, and provide superior value. CIBC Mellon states that they have a shared history and timeline ranging from 1867 to the present. This timeline begins in 1867 when the Canadian Bank of Commerce was established in Canada by the Honorable William McMaster, a prominent Toronto businessman and philanthropist. According to CIBC Mellon in 1869, Mellon Bank was established by Thomas Mellon, a well-known Pittsburgh lawyer and jurist. Over the years, Mellon established itself as one of the world’s top providers of financial services. In 1875, the Imperial Bank of Canada was established by Henry Stark Howland who was previously the vice-president of The Canadian Bank of Commerce. In 1961, The Canadian Bank of Commerce and the Imperial Bank of Canada merged to form the Canadian Imperial Bank of Commerce (CIBC). The transaction remains the largest merger of two chartered banks in Canadian history. In 1991, The R-M Trust Company was formed by Mellon and others in Canada and which provided transfer agency, corporate trust, and other trust services to corporate clients. In 1996, CIBC joined forces with Mellon to form a fifty-fifty jointly-owned company named CIBC Mellon Global Securities Services...
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...Case Studies Solutions Case Studies Solutions,Article Writing,Assignments,Research Work,Home Work MenuSkip to content Home How We Work ? Refund Policy How to Order ? Disclaimer Contact Us Finance Cases List POSTED ON MARCH 8, 2013 Hello, If u want us to solve any case study from below list, do contact us anytime, We are here to provide the experience, expertise, and professionalism that you are looking for , Our tutors are available 24/7 to assist you what you need, Click Here to submit your Order. ======================================================================================= Acquisition of Consolidated Rail Corp. by Benjamin C. Esty Airbus A3XX: Developing the World’s Largest Commercial Jet by Benjamin C. Esty American Chemical Corp.by William E. Fruhan, John P. Goldsberry American Home Products Corp.by David W. Mullins AQR’s Momentum Funds by Daniel B. Bergstresser, Lauren H. Cohen, Randolph B. Cohen, Christopher Malloy Arundel Partners: The Sequel Project by Timothy A. Luehrman AXA MONY by Andre F. Perold, Lucy White Beta Management Co. by Michael E. Edleson Butler Lumber Co. by Thomas R. Piper Cartwright Lumber Co.by Thomas R. Piper Citigroup 2007: Financial Reporting and Regulatory Capital by Edward J. Riedl, Suraj Srinivasan Clarkson Lumber Co. by Thomas R. Piper Cooper Industries, Inc. by Thomas R. Piper Cost of Capital at Ameritrade by Erik Stafford, Mark L. Mitchell Debt Policy at UST, Inc. by Mark L. Mitchell Dell’s Working Capital...
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