| HBS Case Collection
(Revised from original 2000 version)
Cost of Capital at Ameritrade
Ameritrade Holding Corp. is planning large marketing and technology investments to improve the company's competitive position in deep-discount brokerage by taking advantage of emerging economies of scale. In order to evaluate whether the strategy would generate sufficient future cash flows to merit the investment, Joe Ricketts, chairman and CEO of Ameritrade, needs an estimate of the project's cost of capital. There is considerable disagreement as to the correct cost of capital estimate. A research analyst pegs the cost of capital at 12%, the CFO of Ameritrade uses 15%, and some members of Ameritrade management believe that the borrowing rate of 9% is the rate by which to discount the future cash flows expected to result from the project. There is also disagreement as to the type of business that Ameritrade is in. Management insists that Ameritrade is a brokerage firm, whereas some research analysts and managers of other online brokerage firms suggest that Ameritrade is a technology/Internet firm. To obtain executable spreadsheets (courseware), please contact our customer service department at email@example.com.
Keywords: Developing Countries and Economies;
Cost of Capital;
Financial Services Industry;
Mitchell, Mark L., and Erik Stafford. "Cost of Capital at Ameritrade." Harvard Business School Case 201-046, April 2001. (Revised from original October 2000 version.)