Ameritrade Holding Corporation is planning a big marketing and investment in technology to improve the competitive position of the company in deep discount broker, using the emerging economies of scale. In order to assess whether the strategy will generate sufficient cash flows to merit investment, Joe Ricketts, chairman and chief executive officer of Ameritrade, needs evaluation of the project cost of capital. There is a considerable difference in the correctness of the cost of capital estimate. Analyst pegs the cost of capital of 12%, CFO Ameritrade uses 15%, and some members of Ameritrade, management believes that the borrowing rate of 9% is the rate at which to discount the future cash flows expected to result from the project. There is also disagreement about the kind of business that Ameritrade is in. Management insists, Ameritrade is a brokerage firm, while some analysts and leaders of other online brokerage firms suggest that Ameritrade is the technology / Internet companies. For an executable tables (courses), please contact our customer service department at custserv@hbsp.harvard.edu. "Hide
by Mark Mitchell, Erik Stafford Source: HBS Premier Case Collection 24 pages. Publication Date: October 31, 2000. Prod. # 201 046-PDF-ENG
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