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  • October 2000 (Revised April 2001)
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Cost of Capital at Ameritrade

By: Mark L. Mitchell and Erik Stafford
  • Format:Print
  • | Language:English
  • | Pages:24
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Abstract

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 custserv@hbsp.harvard.edu.

Keywords

Developing Countries and Economies; Asset Pricing; Cash Flow; Cost of Capital; Investment; Marketing; Mathematical Methods; Competition; Information Technology; Internet and the Web; Financial Services Industry

Citation

Mitchell, Mark L., and Erik Stafford. "Cost of Capital at Ameritrade." Harvard Business School Case 201-046, October 2000. (Revised April 2001.)
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About The Author

Erik Stafford

Finance
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Related Work

    • December 2000 (Revised May 2001)
    • Faculty Research

    Cost of Capital at Ameritrade

    By: Mark L. Mitchell and Erik Stafford
Related Work
  • Cost of Capital at Ameritrade By: Mark L. Mitchell and Erik Stafford
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