Appendix

Ameritrade
Course 644, Corporate Finance and Value Creation
Erik Bjrk, 23079
Olle Matto, 23207
Linna Ekroth, 23166
Lisa Elander, 23113

Table 1: Calculation of firm returns

Date!

Charles Schwab!
"
Shares! Price!
Dividend! Stock Split !

30-sep-87"

29121" 15,875"

- "

1"

1"

30-okt-87"

29121" 7,875"

- "

1"

1"

30-nov-87"

29121" 6,625"

- "

1"

31-dec-87"

25388" 6,000"

- "

1"

29-jan-88"

25388" 6,500"

- "

1"

29-feb-88"

25388" 9,000"

- "

1"

31-mar-88"

25388" 7,375"

- "

1"

29-aug-97"

176422" 42,750"

"

"

"

"
E*Trade!
Price!

"
X!

0,050 "

"
Dividend! Stock Split!

"

30-aug-96"
30-sep-96"

29393" 10,500"
29539" 13,188"

- "
- "

1"

31-okt-96"

29539" 11,125"

- "

1"

29-nov-96"

29539" 10,938"

- "

1"

29-aug-97"

30958" 32,125"

- "

1"

Date!

"
"
"
Quick & Reilly!
"
Shares! Price!
Dividend! Stock Split!

X!

6318" 15,000"

30-mar-84"

6318" 14,875"

- "

1"

30-apr-84"

6318" 17,125"

- "

1"

31-maj-84"

6318" 17,375"

- "

1"

29-jun-84"

6318" 18,000"

0,050 "

1"

29-aug-97"

38664" 34,250"

0,060 "

1"

0,050 "

"

0,045340"
0,051610"
-0,017060"
-0,036450"

0,052990"
0,013940"
0,065730"
-0,036450"

"
Rt!

Rm!

-0,14609
9291"
-0,00833
3333"
1"
0,151260
504"
1"
0,014598
54"
1"
0,038848
921"
1"
0,307047
619"
1"

1"

"
"
"
Waterhouse Investor Services!
"
Shares! Price!
Dividend! Stock Split!

"
Y!

- "

30-jun-87"
31-jul-87"

2572" 8,000"
2572" 8,250"

- "
- "

1"
1"

31-aug-87"

2572" 7,500"

- "

1"

30-sep-87"

2572" 8,000"

- "

1"

11501" 37,875"
"
"

- "
"

"

1"

"
X!

2572" 6,938"

"

0,070410"

- "

29-maj-87"

30-sep-96"
"

-0,072900"

Rm!

0,256"
-0,15643
0088"
1"
-0,01680
8989"
1"
0,053278
689"
1"

Y!

29-feb-84"

Date!

-0,224870"

"
Rt!

1"

"
X!

6318" 17,625"

"

"
Y!

31-jan-84"

"

Rm!

"

Shares!

"

"
Rt!

-0,50393
7008"
-0,15873
0159"
1"
-0,09433
9623"
1"
0,083333
333"
1"
0,384615
385"
1"
-0,18055
5556"
1"
-0,08936
1702"
1"

1"

Date!

"

"
Y!

1"
"

-0,039170"
0,013450"
0,002730"
-0,052350"
0,023590"
-0,036450"

"
Rt!

0,153070
049"
1"
1" 0,03125"
-0,09090
9091"
1"
0,066666
667"
1"
0,013377
926"
1,0"
"
"

Rm!

0,043830"
0,044050"
0,037230"
-0,020740"
0,052990"

Not. Years between the first four and last for each company has been hidden, firm returns
Rt are calculated as advised in assignment, Rm is the VW NYSE index from exhibit 6

Table 2: Calculation of asset beta and project cost of

capital
TAX RATE!

35%"

Debt Beta!
0,25"

D/E!

rf!

Ameritrade!
Beta!

10,31"-"

Charles Schwab!
Cov(x, market)! Var(rm)!
Beta!
0,001408714" 0,0006133" 2,2969806"

6,61%"

D/V!

0,91"

D/V!

rf-rm!

7,39%"

Debt Beta assumptions!

0"
0,125"
0,25"

return (A)! return (A)! return (A)! Unl. Beta! Unl. Beta! Unl. Beta!
2,0984002 2,1108585 2,1233169
59"
93"
26"
22,12%" 22,21%" 22,30%"

0,080"

Debt Beta assumptions!

0"
0,125"
0,25"
Unl. Beta! Unl. Beta! Unl. Beta!
2,1132222" 2,1197222" 2,1262222"

Quick & Reilly!

Cov(x, market)! Var(rm)!
Beta!
0,001351834" 0,0006133" 2,2042343"

D/V!

Debt Beta assumptions!

0"
0,125"
0,25"

0,00"

Unl. Beta! Unl. Beta! Unl. Beta!

2,2042343" 2,2042343" 2,2042343"

Waterhouse Investor Services!

Cov(x, market)! Var(rm)! Eq Beta!
D/V!
0,001863688" 0,0005842" 3,1899101"

0,38"

Debt Beta assumptions!

0"
0,125"
0,25"

Debt Beta assumptions!

0"
0,125"
0,25"
Unl. Beta! Unl. Beta! Unl. Beta!
1,9777443" 2,0086193" 2,0394943"

Not. For more information regarding assumptions, choice of debt betas, etc. see
memorandum

Table 3: Comparison of calculated project cost of capital

and expected return according to Ameritrade manager and
CEO
Expected Return and Cost of Capital
0,45
0,4
0,35
0,3
0,25
0,2

0,125

0,15
0,1
0,05
0
Cost of Capital (debt Cost of Capital Cost Cost of Capital (debt
beta=0)
of Capital (debt
beta=0,25)
beta=0,125)

CEO E( r )

Manager E( r )