Sign Up Now
Get instant access to over 1 million+ study documents
OR
Already registered? click here to login
By creating your account, you agree to our terms of service, privacy policy and student honor code.
2. The capital asset pricing model can be used to estimate the cost of capital because it allows for an estimate to be drawn as to the company's cost of equity. This can then be plugged into a weighted average cost of capital calculation along with the company's debt and, if relevant, preferred shares. The cost of equity reflects the company's risk in relation to the risk associated with the market in general. Investors will want the returns of the company to be commensurate with the risk that they are taking on, in order to justify that investment.
The capital asset pricing model is as follows:
Ra = Rf + ?(Rm-Rf)
That weighted average cost of capital is the discount rate that should be used to discount the expected future cash flows of the project to determine whether or not the project adds value to the firm.
3. The risk free rate is the rate of return that one would earn without taking on risk. The only securities that have no risk are short-term government securities....
There is no hard-and-fast rule about which Treasury rate should be used, but anything from three months to a year is reasonable. Longer-term bonds are not appropriate because there is risk associated with longer-term securities, even Treasuries, hence why they pay more. The current rate should always be used, rather than the historic rate, because the rate should reflect the opportunity cost of an investment decision today. The yield to maturity on a 1-year bond is 5.59%.
4. The market risk premium has two options in the case, one for large company stocks and one for small company stocks. The characteristics of each of these types of companies determines which one is more appropriate. Given that Ameritrade is newly public, growing rapidly and the book value of the company's equity at $67 million, Ameritrade would fit more into the small company category. As such, the market risk would 12.7%.
From this, the risk free rate must be subtracted in order to obtain the market risk premium: 12.7…
Because Ameritrade's Initial public offering was in March of 1997, the time series is to short for estimating beta (August 1997), as the provided data will give inaccurate results. That's why in order to estimate beta for Ameritrade correctly we can refer to the finance data of the comparable companies. It means that we should choose companies, which have cash flows with similar risk indexes, as these companies will
The study of trends is common ground for both technical analysis and fundamental analysis. While technical analysis looks trends in price and volume fundamental analysis focuses on economic and corporate growth trends and the forecast of performance using the trends of relevant factors. The basis of any long-term trend in price and volume for all securities and stocks is rooted in fundamentals. Technical analysis grows on looking at changing
Only eTrade and Waterhouse make good comparables in terms of being in the same discount brokerage business. Full service brokers are working with different revenue streams and ancillary businesses that greatly reduce their effectiveness as comparables. Waterhouse's relevance becomes suspect when you consider that they are no longer public. Their data is old - the beta of a discount brokerage in the telephone era is not especially useful to
Telephone, wireless, and internet communications is becoming increasingly critical to simply live and function in modern society and commerce. However, the volatility of the industry might make certain aspects of investing in any telecommunications company dicey -- competition is likely to be fierce in upcoming years, and also a new form of technology developed by a rival company might weaken at&T's competitive edge. Not even the most perfect formula
In one case in 2000, two-20-year-olds hacked into the Lowe's credit card mainframe from a white Pontiac Grand Prix parked outside a store, synching a single laptop to the wireless system that was meant for employees to use to locate products. The hackers, obviously to blame for the crime, played on the flaws of a computer system that should not have allowed for a security breach. While the same hackers
(Hackers Chronology, 2006). 1989 The first case of cyber espionage is recognized in Germany (west). This reportedly involved the CHAOS computer club. "Mentor releases the hacker manifesto Conscience of a hacker, which ends with the intriguing line: 'You may stop the individual, but you can't stop us all.'" (Hackers Chronology, 2006). 1990 Electronic Frontier, Freedom on the Internet advocacy group, is launched Polymorphic viruses (which modifies themselves when they spread), along with other sophisticated kinds of