Case Analysis
Ronnie Salhov
30141718
Ameritrades typesetters case study deals with the issue of another decision criteria when it comes to choosing whether to take on an investment or a project. The proposed investment is made in order to get closer to achieving the companys objective, which is to give out top at the discount-brokerage industry. It plans to achieve that goal by change magnitude its consumer base. This can be done if it improves its technologies to be able to allow to its customers a service that get out be faster, easier and the most preventative and reliable existed among its competitors in the market. This, of course, provide be provided by the net price possible. Moreover, part of the investment is planned to go to publicise in order to increase the consumers aw areness. When Ameritrade recollects taking this project it should consider 2 important factors.
The first will be the riskiness of the project. The riskiness will be taken into account finished the discount rate, which will be used to discount the estimated evaluate cash flows that will follow by taking the project. In the case, we are told about several different estimations as to the take of expected return.
One must take into account what are the factors that brought each of these estimators to offer such a rate, is it high enough, or maybe too high. A reasonable thing to do in order to estimate the discount rate will be to calculate the return on debt and the return on equity, and by giving weight to the capital structure, find the overall cost of capital of the firm, thus finding the Weighed Average Cost of Capital (WACC).
Second important factor is positive NPV. As known, a firm is adding value by taking on projects with a positive NPV. Thus, Ameritrade has to calculate the NPV of this investment by estimating its incoming cash flows and only if it will turn positive it will be a used as decision criteria and they should invest. It is important to use the correct level...If you want to get a wax essay, order it on our website: Orderessay
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