Estimating the Cost of Capital at Ameri-Trade -Finance Case Sample

QUESTION

 

Copyright

THE COST OF CAPITAL AT AMERITRADE
Harvard Business School Case 201-046 (2nd edition)
Case Software 2-201-711
Copyright © 2000 by the President and Fellows of Harvard College
Professors Mark Mitchell and Erik Stafford prepared this case with the assistance of Research Associates Jose Camacho and Aldo Sesia as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

 

Exhibit 1

Exhibit 1 Consolidated Annual Income Statements for the Fiscal Year Ending in September      
1997 1996 1995
Net Revenues
Transaction Income $51,936,902 $36,469,561 $23,977,481
Net Interest 18,193,946 11,477,878 8,434,584
Other 7,107,492 6,391,314 2,607,538
Total Net Revenues 77,238,340 54,338,753 35,019,603
Expenses Excluding Interest
Employee Compensation 19,290,808 14,049,642 8,481,977
Commissions and Clearance 3,320,262 2,530,642 2,516,796
Communications 5,623,468 3,685,535 2,352,590
Occupancy and Equipment Cost 5,422,839 2,889,654 1,626,725
Advertising and Promotion 13,970,834 7,537,265 4,842,392
Provision for Losses 59,000 148,014 1,428,663
Amortization of Goodwill 363,002 363,002 94,152
Other 7,763,014 4,717,406 2,846,280
Total Expenses Excluding Interest 55,813,227 35,921,160 24,189,575
Income Before Income Taxes 21,425,113 18,417,593 10,830,028
Taxes 7,602,964 7,259,248 3,798,881
Net Income $13,822,149 $11,158,345 $7,031,147
EPS $1.00 $0.87 $0.55
Shares Outstanding 13,768,889 12,813,823 12,813,823
Source: Ameritrade Annual Report, 1997.

 

Exhibit 2

Exhibit 2 Consolidated Annual Balance Sheets for the Fiscal Year Ending in September    
1997 1996
ASSETS
Cash and Cash Equivalents $53,522,447 $15,767,170
Cash and Investments Segregated in Compliance with Federal Regulations 319,763,921 175,668,497
Receivable from Brokers, Dealers, and Clearing Organizations 17,823,640 15,096,862
Receivable from Customers and Correspondents 325,407,147 166,075,055
Furniture, Equipment, and Leasehold Improvements 8,709,923 3,746,178
Goodwill 6,346,763 6,709,765
Equity Investments 7,597,972 7,157,783
Other Investments 5,000,000 5,000,000
Deferred Income Taxes 39,314 444,378
Other Assets 13,145,616 6,013,544
Total Assets $757,356,743 $401,679,232
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Payable to Brokers, Dealers, and Clearing Organizations 1,404,999 1,193,479
Payable to Customers and Correspondents 666,279,440 356,942,970
Accounts Payable and Accrued Liabilities 19,252,931 7,221,008
Notes Payable to Bank 4,853,000
Income Taxes Payable 3,430,279 806,711
Total Liabilities 690,367,649 371,017,168
Stockholders’ Equity:
Class A Common Stock 131,534 114,494
Class B Common Stock 13,644 13,644
Additional Paid in Capital 23,297,506 809,665
Retained Earnings 43,546,410 29,724,261
Total Stockholders’ Equity 66,989,094 30,662,064
Total Liabilities and Stockholders’ Equity $757,356,743 $401,679,232
Source: Ameritrade Annual Report, 1997.

 

Exhibit 3

Exhibit 3 Capital Market Return Data (Historical and Current)    
Prevailing Yields on U.S. Government Securities (August 31, 1997)
Annualized Yield to Maturity
 
3-Month T-Bills 5.24%
1-Year Bonds 5.59%
5-Year Bonds 6.22%
10-Year Bonds 6.34%
20-Year Bonds 6.69%
30-Year Bonds 6.61%
Historic Average Total Annual Returns on U.S. Government Securities and Common Stocks (1950-1996)
Average Annual Return Standard Deviation
   
T-Bills 5.2% 3.0%
Intermediate Bondsa 6.4% 6.6%
Long-term Bondsb 6.0% 10.8%
Large Company Stocksc 14.0% 16.8%
Small Company Stocksd 17.8% 25.6%
Historic Average Total Annual Returns on U.S. Government Securities and Common Stocks (1929-1996)
Average Annual Return Standard Deviation
   
T-Bills 3.8% 3.3%
Intermediate Bondsa 5.4% 5.8%
Long-term Bondsb 5.5% 9.2%
Large Company Stocksc 12.7% 20.3%
Small Company Stocksd 17.7% 34.1%
Sources: Yields are from Datastream, historical data are from Ibbotson Associates, SBBI 2000 Yearbook.
aPortfolio of U.S. Government bonds with maturity near 5 years.
bPortfolio of U.S. Government bonds with maturity near 20 years.
cStandard & Poor’s 500 Stock Price Index.
dA subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisor’s Small Company Fund (1982-1997).

 

Exhibit 4

Exhibit 4 Selected Data for Comparable Firms              
Debt/Value Debt/Capital
(Market Values) (Book Values)
Firm Name (Industry) Current Average
1992-1996
  Current Average
1992-1996
Brokerage
Revenues (%)
A G Edwards (Investment Services)a 0.00 0.00 0.00 0.00 57
Bear Stearns (Investment Services) 0.60 0.50 0.69 0.60 35
Charles Schwab Corp (Discount Brokerage) 0.05 0.08 0.25 0.30 82
E*Trade (Discount Brokerage) 0.00 NA 0.00 NA 95
Lehman Brothers (Investment Services) 0.79 NA 0.80 0.79b 13
Mecklermedia (Internet) 0.00 0.00b 0.00 0.00b 0
Merrill Lynch & Co (Investment Services) 0.57 0.52 0.77 0.65 37
Morgan Stanley Dean Witter (Investment Services) 0.57 0.53 0.70 0.63 12
Netscape (Internet) 0.00 NA 0.00 NA 0
Paine Webber (Investment Service) 0.51 0.53 0.63 0.58 46
Quick & Reilly Group (Discount Brokerage) 0.00 0.00 0.00 0.00 81
Raymond James Financial (Investment Services) 0.05 0.04 0.07 0.06 51
Waterhouse Investor Srvcs (Discount Brokerage) NA 0.38 NA 0.70c 99
Yahoo! (Internet) 0.00 NA 0.00 NA 0
Source: Compustat; Standard & Poor’s; company public filings.
aInvestment Services includes brokerage, asset management, investment banking, and trading.
bIndicates average over 1993-1996.
cIndicates average over 1992-1995.

 

Exhibit 5

Exhibit 5 Stock Price Data for Discount Brokers          
Ameritrade
Date Shares Price Dividend Stock Split
31-Mar-97 13,153 15.625 1.000
30-Apr-97 13,153 12.500
30-May-97 13,153 14.000
30-Jun-97 14,518 15.750
31-Jul-97 14,518 15.375
29-Aug-97 14,518 18.813
Charles Schwab
Date Shares Price Dividend Stock Split
30-Sep-87 29,121 15.875
30-Oct-87 29,121 7.875
30-Nov-87 29,121 6.625
31-Dec-87 25,388 6.000
29-Jan-88 25,388 6.500
29-Feb-88 25,388 9.000
31-Mar-88 25,388 7.375
29-Apr-88 25,388 7.625
31-May-88 25,388 6.875
30-Jun-88 25,294 7.250
29-Jul-88 25,294 7.500
31-Aug-88 25,294 6.750
30-Sep-88 25,328 6.750
31-Oct-88 25,328 7.500
30-Nov-88 25,328 6.750
30-Dec-88 25,354 6.750
31-Jan-89 25,354 10.250
28-Feb-89 25,354 8.625
31-Mar-89 25,354 8.875
28-Apr-89 25,354 10.125
31-May-89 25,354 11.750 0.030
30-Jun-89 25,352 11.000
31-Jul-89 25,352 16.500 0.030
31-Aug-89 25,352 15.750
29-Sep-89 25,386 14.000
31-Oct-89 25,386 13.000 0.030
30-Nov-89 25,386 12.500
29-Dec-89 25,332 13.875
31-Jan-90 25,332 13.500 0.030
28-Feb-90 25,332 15.250
30-Mar-90 25,332 17.000
30-Apr-90 25,332 15.125 0.030
31-May-90 25,332 15.750
29-Jun-90 25,099 15.250
31-Jul-90 25,099 13.625 0.030
31-Aug-90 25,099 12.625
28-Sep-90 25,255 11.375
31-Oct-90 25,255 12.625 0.040
30-Nov-90 25,255 11.875
31-Dec-90 24,464 11.375
31-Jan-91 24,464 16.000 0.040
28-Feb-91 24,464 18.250
28-Mar-91 24,464 20.250
30-Apr-91 24,464 18.125 0.040
31-May-91 24,464 22.500
28-Jun-91 24,435 24.750
31-Jul-91 24,435 27.500 0.050
30-Aug-91 24,435 28.375
30-Sep-91 25,596 31.125
31-Oct-91 25,596 37.750 0.060
29-Nov-91 25,596 32.750
31-Dec-91 38,394 30.375 3 for 2
31-Jan-92 38,394 31.875 0.040
28-Feb-92 38,394 33.250
31-Mar-92 38,479 34.625
30-Apr-92 38,479 28.500 0.060
29-May-92 38,479 28.875
30-Jun-92 38,626 23.500
31-Jul-92 38,626 24.625 0.060
31-Aug-92 38,626 22.500
30-Sep-92 38,149 18.000
30-Oct-92 38,149 20.250 0.060
30-Nov-92 38,149 24.875
31-Dec-92 37,741 26.125
29-Jan-93 37,741 30.250 0.060
26-Feb-93 37,741 32.375
31-Mar-93 37,741 36.500
30-Apr-93 37,741 32.750 0.075
28-May-93 37,741 35.250
30-Jun-93 56,612 28.500 3 for 2
30-Jul-93 56,612 29.000 0.050
31-Aug-93 56,612 32.875
30-Sep-93 57,625 34.500
29-Oct-93 57,625 34.625 0.050
30-Nov-93 57,815 31.875
31-Dec-93 57,815 32.375
31-Jan-94 57,815 29.500 0.070
28-Feb-94 57,815 27.500
31-Mar-94 57,815 26.875
29-Apr-94 57,815 28.375 0.070
31-May-94 57,815 30.250
30-Jun-94 57,114 24.750
29-Jul-94 57,114 26.750 0.070
31-Aug-94 57,114 30.750
30-Sep-94 56,829 29.625
31-Oct-94 56,829 35.375 0.070
30-Nov-94 57,325 31.875
30-Dec-94 57,325 34.875
31-Jan-95 57,325 40.000 0.090
28-Feb-95 57,325 44.375
31-Mar-95 85,988 32.250 3 for 2
28-Apr-95 85,988 34.250 0.060
31-May-95 85,988 35.000
30-Jun-95 85,896 43.875
31-Jul-95 85,896 46.125 0.080
31-Aug-95 87,061 46.625
29-Sep-95 174,122 29.000 2 for 1
31-Oct-95 174,122 22.875 0.040
30-Nov-95 174,678 24.250
29-Dec-95 174,678 20.125
31-Jan-96 174,678 25.125 0.040
29-Feb-96 174,678 25.500
29-Mar-96 174,678 25.875
30-Apr-96 174,032 24.500 0.040
31-May-96 174,032 24.250
28-Jun-96 174,989 24.500
31-Jul-96 174,989 24.125 0.050
30-Aug-96 174,989 25.000
30-Sep-96 175,166 23.000
31-Oct-96 175,166 25.000 0.050
29-Nov-96 175,166 30.250
31-Dec-96 175,173 32.000
31-Jan-97 175,173 37.500
28-Feb-97 175,173 37.500 0.050
31-Mar-97 175,173 32.000
30-Apr-97 175,068 36.625
30-May-97 175,068 40.625 0.050
30-Jun-97 175,813 40.500
31-Jul-97 176,422 47.000
29-Aug-97 176,422 42.750 0.050
E*Trade
Date Shares Price Dividend Stock Split
30-Aug-96 29,393 10.500
30-Sep-96 29,539 13.188
31-Oct-96 29,539 11.125
29-Nov-96 29,539 10.938
31-Dec-96 29,545 11.500
31-Jan-97 29,545 17.625
28-Feb-97 29,545 24.000
31-Mar-97 30,440 18.000
30-Apr-97 30,440 15.000
30-May-97 30,440 17.625
30-Jun-97 30,958 19.625
31-Jul-97 30,958 30.500
29-Aug-97 30,958 32.125
Quick & Reilly
Date Shares Price Dividend Stock Split
31-Jan-84 6,318 17.625
29-Feb-84 6,318 15.000 0.050
30-Mar-84 6,318 14.875
30-Apr-84 6,318 17.125
31-May-84 6,318 17.375
29-Jun-84 6,318 18.000 0.050
31-Jul-84 6,318 14.750
31-Aug-84 6,318 18.000 0.050
28-Sep-84 6,318 17.000
31-Oct-84 6,318 17.875
30-Nov-84 6,318 15.250 0.050
31-Dec-84 6,318 15.500
31-Jan-85 6,318 23.375
28-Feb-85 6,318 23.750 0.110
29-Mar-85 6,318 23.125
30-Apr-85 6,318 20.625
31-May-85 6,318 22.625 0.060
28-Jun-85 6,318 24.000
31-Jul-85 6,318 24.125
30-Aug-85 6,318 22.875 0.060
30-Sep-85 6,318 20.125
31-Oct-85 6,318 22.250
29-Nov-85 6,318 25.500 0.060
31-Dec-85 6,318 32.500
31-Jan-86 6,318 36.375
28-Feb-86 6,318 39.125 0.170
31-Mar-86 6,318 39.000
30-Apr-86 6,318 30.375
30-May-86 11,149 33.375 0.070
30-Jun-86 11,149 35.500
31-Jul-86 11,149 29.000
29-Aug-86 11,149 28.750 0.070
30-Sep-86 11,149 23.875
31-Oct-86 11,149 32.125
28-Nov-86 11,149 29.500 0.070
31-Dec-86 11,149 26.750
30-Jan-87 11,149 36.125
27-Feb-87 11,149 36.875 0.200
31-Mar-87 11,149 36.000
30-Apr-87 16,724 21.375 3 for 2
29-May-87 16,724 21.500 0.055
30-Jun-87 9,477 19.250
31-Jul-87 9,477 20.250
31-Aug-87 9,477 24.625 0.055
30-Sep-87 9,477 23.000
30-Oct-87 9,477 12.125
30-Nov-87 9,477 11.625 0.055
31-Dec-87 9,477 12.500
29-Jan-88 9,477 12.625
29-Feb-88 9,477 13.500 0.180
31-Mar-88 9,452 12.250
29-Apr-88 9,452 12.625
31-May-88 9,452 11.500 0.060
30-Jun-88 9,452 11.875
29-Jul-88 9,452 11.500
31-Aug-88 9,452 11.250 0.060
30-Sep-88 9,452 11.750
31-Oct-88 9,452 11.750
30-Nov-88 9,452 11.500 0.060
30-Dec-88 9,452 10.875
31-Jan-89 9,452 15.000
28-Feb-89 9,452 13.750 0.060
31-Mar-89 9,452 13.250
28-Apr-89 9,452 13.000
31-May-89 9,452 16.125 0.060
30-Jun-89 9,452 14.000
31-Jul-89 9,452 16.500
31-Aug-89 9,452 17.000 0.060
29-Sep-89 9,452 16.750
31-Oct-89 9,452 15.750
30-Nov-89 9,452 14.875 0.060
29-Dec-89 9,452 13.625
31-Jan-90 9,452 12.000
28-Feb-90 9,452 13.625 0.130
30-Mar-90 9,452 13.250
30-Apr-90 9,452 13.000
31-May-90 9,452 15.250 0.070
29-Jun-90 9,452 14.000
31-Jul-90 9,452 13.500
31-Aug-90 9,452 11.375 0.070
28-Sep-90 9,452 10.375
31-Oct-90 9,452 9.750
30-Nov-90 9,452 10.125 0.070
31-Dec-90 9,437 10.250
31-Jan-91 9,437 13.125
28-Feb-91 9,437 16.125 0.070
28-Mar-91 9,210 18.875
30-Apr-91 9,210 17.500
31-May-91 9,210 17.750 0.070
28-Jun-91 9,452 17.000
31-Jul-91 9,452 19.625
30-Aug-91 9,452 20.625 0.070
30-Sep-91 9,210 19.250
31-Oct-91 9,210 20.375
29-Nov-91 9,210 20.000 0.070
31-Dec-91 9,220 27.750
31-Jan-92 9,220 27.500
28-Feb-92 9,220 28.500 0.180
31-Mar-92 9,292 28.625
30-Apr-92 9,292 21.500
29-May-92 9,292 21.500 0.080
30-Jun-92 9,292 21.000
31-Jul-92 9,292 20.125
31-Aug-92 9,292 19.625 0.080
30-Sep-92 9,884 20.125
30-Oct-92 9,884 21.000
30-Nov-92 9,884 25.375 0.080
31-Dec-92 9,884 24.750
29-Jan-93 9,884 27.000
26-Feb-93 9,884 26.000 0.220
31-Mar-93 9,824 27.125
30-Apr-93 9,824 25.125
28-May-93 9,824 26.125 0.100
30-Jun-93 10,315 28.875 1.443
30-Jul-93 10,623 30.750
31-Aug-93 10,623 35.000 0.100
30-Sep-93 10,643 36.250
29-Oct-93 10,643 35.875
30-Nov-93 10,678 34.250 0.100
31-Dec-93 11,212 35.750 1.788
31-Jan-94 10,678 35.375
28-Feb-94 11,238 28.375 0.270
31-Mar-94 11,238 25.625
29-Apr-94 11,238 26.375
31-May-94 11,238 26.875 0.120
30-Jun-94 11,168 25.375
29-Jul-94 11,168 24.750
31-Aug-94 11,121 29.250 0.120
30-Sep-94 11,121 25.875
31-Oct-94 11,111 25.750
30-Nov-94 11,111 24.750 0.120
30-Dec-94 11,111 28.375
31-Jan-95 11,075 30.875
28-Feb-95 11,075 35.000 0.290
31-Mar-95 11,075 35.500
28-Apr-95 11,075 40.625
31-May-95 11,075 47.000
30-Jun-95 16,613 36.625 0.150 3 for 2
31-Jul-95 16,613 38.500
31-Aug-95 16,613 37.375 0.100
29-Sep-95 16,613 45.875
31-Oct-95 24,920 23.750 3 for 2
30-Nov-95 24,952 25.375 0.070
29-Dec-95 24,952 20.500
31-Jan-96 25,056 23.250
29-Feb-96 25,056 26.250 0.080
29-Mar-96 25,056 29.500
30-Apr-96 25,056 30.500
31-May-96 25,056 33.875 0.070
28-Jun-96 25,056 32.500
31-Jul-96 25,178 28.375
30-Aug-96 25,178 29.250 0.080
30-Sep-96 25,178 26.500
31-Oct-96 25,178 26.250
29-Nov-96 25,178 28.375 0.080
31-Dec-96 25,178 29.875
31-Jan-97 25,173 36.625
28-Feb-97 25,173 35.000 0.190
31-Mar-97 37,760 20.875 3 for 2
30-Apr-97 37,760 22.125
30-May-97 37,760 23.000 0.060
30-Jun-97 38,606 23.250
31-Jul-97 38,664 26.250
29-Aug-97 38,664 34.250 0.060
Waterhouse Investor Services
Date Shares Price Dividend Stock Split
29-May-87 2,572 6.938
30-Jun-87 2,572 8.000
31-Jul-87 2,572 8.250
31-Aug-87 2,572 7.500
30-Sep-87 2,572 8.000
30-Oct-87 2,572 6.250
30-Nov-87 2,572 6.000
31-Dec-87 2,572 5.250
29-Jan-88 2,572 4.500
29-Feb-88 2,482 4.750
31-Mar-88 2,482 6.000
29-Apr-88 2,482 5.875
31-May-88 2,482 6.250
30-Jun-88 2,482 5.000
29-Jul-88 2,482 3.500
31-Aug-88 2,482 3.250
30-Sep-88 2,482 4.000
31-Oct-88 2,482 3.375
30-Nov-88 2,482 3.500
30-Dec-88 2,482 2.750
31-Jan-89 2,482 3.750
28-Feb-89 2,472 3.750
31-Mar-89 2,472 4.750
28-Apr-89 2,472 4.250
31-May-89 2,420 5.000
30-Jun-89 2,420 6.000
31-Jul-89 2,420 6.000
31-Aug-89 2,419 5.750 0.120
29-Sep-89 2,419 5.625
31-Oct-89 2,419 5.375
30-Nov-89 2,417 5.000
29-Dec-89 2,417 4.500
31-Jan-90 2,417 4.375
28-Feb-90 2,420 3.750
30-Mar-90 2,420 4.250
30-Apr-90 2,420 4.375
31-May-90 2,572 4.250
29-Jun-90 2,572 4.750
31-Jul-90 2,572 4.625
31-Aug-90 2,377 4.375 0.150
28-Sep-90 2,377 4.250
31-Oct-90 2,377 4.000
30-Nov-90 2,370 3.750
31-Dec-90 2,370 3.625
31-Jan-91 2,370 3.750
28-Feb-91 2,320 4.500
28-Mar-91 2,320 6.125
30-Apr-91 2,320 7.000
31-May-91 2,320 8.250
28-Jun-91 2,900 8.000 5 for 4
31-Jul-91 2,900 10.375
30-Aug-91 2,943 10.750 0.160
30-Sep-91 2,943 14.250
31-Oct-91 2,943 14.000
29-Nov-91 2,943 15.500
31-Dec-91 2,943 27.500
31-Jan-92 2,943 26.500
28-Feb-92 4,415 21.750 3 for 2
31-Mar-92 4,466 25.375
30-Apr-92 4,466 20.625
29-May-92 4,466 21.750
30-Jun-92 4,466 17.125
31-Jul-92 4,466 17.625
31-Aug-92 4,466 13.750 0.200
30-Sep-92 4,847 14.375
30-Oct-92 4,847 15.625
30-Nov-92 4,847 20.750
31-Dec-92 4,847 20.500
29-Jan-93 4,847 25.250
26-Feb-93 4,847 24.375
31-Mar-93 6,071 20.500 5 for 4
30-Apr-93 6,071 18.500
28-May-93 6,071 27.250
30-Jun-93 6,072 33.500
30-Jul-93 6,072 33.000
31-Aug-93 6,072 42.625 0.250
30-Sep-93 6,072 50.125
29-Oct-93 6,072 47.250
30-Nov-93 9,108 25.750 3 for 2
31-Dec-93 9,150 21.250
31-Jan-94 9,150 21.250
28-Feb-94 9,150 20.500
31-Mar-94 9,150 17.625
29-Apr-94 9,150 16.000
31-May-94 9,150 15.250
30-Jun-94 9,150 13.375
29-Jul-94 9,150 13.000
31-Aug-94 9,150 17.000 0.200
30-Sep-94 9,150 14.125
31-Oct-94 9,150 16.125
30-Nov-94 9,150 14.250
30-Dec-94 9,154 12.250
31-Jan-95 9,154 14.500
28-Feb-95 9,154 17.375
31-Mar-95 9,154 16.125
28-Apr-95 9,154 15.625
31-May-95 9,154 17.500
30-Jun-95 9,154 23.000
31-Jul-95 9,154 27.625
31-Aug-95 9,154 28.625 0.250
29-Sep-95 11,442 25.500 5 for 4
31-Oct-95 11,442 19.750
30-Nov-95 11,442 19.750
29-Dec-95 11,452 24.750
31-Jan-96 11,452 23.625
29-Feb-96 11,452 24.625
29-Mar-96 11,452 33.375
30-Apr-96 11,452 36.250
31-May-96 11,458 36.625
28-Jun-96 11,458 37.125
31-Jul-96 11,501 37.625
30-Aug-96 11,501 37.375 0.220
30-Sep-96 11,501 37.875
Source: Center for Research on Security Prices, University of Chicago.

 

Exhibit 6

Exhibit 6 Stock Return Data for Investment Service firms, Internet Firms, and the Aggregate Stock Market                          
Date A G Edwards Bear
Stearns
Lehman
Bros.
Meckler-media Merrill
Lynch
Morgan Stanley
Dean Witter
Netscape Paine
Webber
Raymond
James
Yahoo! VW NYSE,
AMEX, and
NASDAQ
EW NYSE,
AMEX, and
NASDAQ
Treasury Bill (rf)
31-Jan-84 0.026040 -0.013280 -0.042860 0.040000 -0.012910 0.005760
29-Feb-84 -0.111680 -0.167330 -0.175370 -0.102560 -0.039170 -0.053810
30-Mar-84 -0.042290 -0.019140 0.073300 -0.050000 0.013450 0.007100
30-Apr-84 0.012050 -0.011710 0.080510 -0.067670 0.002730 -0.019420
31-May-84 -0.017860 -0.044780 -0.113730 -0.072580 -0.052350 -0.050770
29-Jun-84 0.100610 0.119790 0.084960 -0.043480 0.023590 0.013800
31-Jul-84 0.016670 -0.076280 -0.090160 0.018180 -0.020350 -0.047450
31-Aug-84 0.178140 0.304570 0.189190 0.214290 0.112570 0.089620
28-Sep-84 -0.032710 -0.077820 -0.105300 -0.029410 0.000390 0.000270
31-Oct-84 0.024150 0.023630 0.029790 0.015150 0.000130 -0.020890
30-Nov-84 -0.066040 -0.091290 -0.041320 -0.179100 -0.010620 -0.031410
31-Dec-84 -0.017170 -0.013700 -0.046550 -0.054550 0.023790 0.005050
31-Jan-85 0.331610 0.277780 0.431820 0.430770 0.085730 0.122760
28-Feb-85 -0.007780 -0.023190 -0.022220 0.027030 0.017000 0.047140
29-Mar-85 -0.036860 -0.085820 0.026620 0.013160 -0.001930 -0.008530
30-Apr-85 -0.094260 -0.034290 -0.123810 -0.025970 -0.002180 -0.011290
31-May-85 0.085970 0.089360 0.065220 0.013330 0.055870 0.022930
28-Jun-85 0.102500 0.011720 -0.040140 0.039470 0.017190 0.003470
31-Jul-85 -0.064640 0.040930 -0.092530 0.017720 -0.000540 0.019510
30-Aug-85 -0.036590 -0.052240 -0.038430 0.025000 -0.004800 -0.003410
30-Sep-85 -0.132490 -0.141730 -0.049180 -0.048780 -0.039650 -0.056140
31-Oct-85 0.088240 0.100920 0.008620 0.000000 0.044570 0.018960
29-Nov-85 0.099100 -0.103450 0.127500 0.197440 0.256410 0.069270 0.053270
31-Dec-85 0.141800 0.193590 0.022300 0.003580 0.015920 0.043060 0.029130
31-Jan-86 0.039710 0.156760 0.152730 0.107140 0.288890 0.009860 0.043400
28-Feb-86 0.149310 0.130840 0.036590 0.068390 0.103450 0.072840 0.062360
31-Mar-86 0.083990 0.128720 0.012230 0.036360 0.171880 0.053880 0.047720
30-Apr-86 -0.086830 0.065640 -0.102720 0.051150 -0.137430 -0.100000 -0.008060 0.015840
30-May-86 0.026070 0.003620 -0.008080 0.013420 0.051530 -0.007410 0.050810 0.036630
30-Jun-86 -0.066370 -0.168520 -0.054610 -0.062910 -0.116500 -0.040600 0.014300 0.008960
31-Jul-86 -0.067630 -0.141920 -0.039710 -0.070670 -0.010990 -0.187500 -0.059690 -0.073610
29-Aug-86 0.104660 0.160310 0.145110 0.149050 0.175930 0.038460 0.066390 0.022110
30-Sep-86 -0.094340 -0.145530 -0.052810 -0.119400 -0.015590 -0.092590 -0.079140 -0.060490
31-Oct-86 0.151040 0.217050 0.195120 0.160830 0.172690 0.081630 0.049440 0.024620
28-Nov-86 -0.022620 -0.057320 -0.074050 -0.030890 -0.075210 -0.056600 0.015170 -0.006280
31-Dec-86 -0.040740 -0.102160 -0.075950 -0.129190 -0.063200 -0.026800 -0.026540 -0.034530
30-Jan-87 0.334950 0.318180 0.198630 0.112910 0.178570 0.319590 0.128370 0.116820
27-Feb-87 0.000000 -0.022990 -0.015430 -0.048610 -0.033540 0.289060 0.047630 0.074950
31-Mar-87 0.044950 -0.024650 -0.002920 0.036500 -0.003500 0.261940 0.023240 0.033090
30-Apr-87 -0.122380 -0.121020 -0.152050 0.005280 -0.084210 -0.116400 -0.017130 -0.019610
29-May-87 -0.023900 -0.028990 -0.041380 0.020320 -0.061150 -0.101800 0.005220 0.000710
30-Jun-87 -0.104650 0.022090 0.010870 -0.003440 0.020490 -0.031200 0.043830 0.022010
31-Jul-87 0.073390 -0.007350 0.100360 0.023490 0.052210 -0.062070 0.044050 0.034700
31-Aug-87 0.027180 0.103700 0.032570 0.069370 0.023050 0.169120 0.037230 0.015590
30-Sep-87 -0.071130 0.080270 -0.031750 0.023730 -0.029960 -0.142640 -0.020740 -0.015510
30-Oct-87 -0.337840 -0.400000 -0.357380 -0.337560 -0.474900 -0.352940 -0.224870 -0.270850
30-Nov-87 -0.174420 -0.145830 -0.153060 -0.163930 -0.021760 -0.113640 -0.072900 -0.052300
31-Dec-87 0.033330 0.023900 0.091460 0.148460 -0.128790 -0.038460 0.070410 0.027940
29-Jan-88 0.080650 0.144580 0.072630 -0.019510 0.113040 0.137600 0.045340 0.078110
29-Feb-88 0.062390 0.157890 0.062500 0.168660 0.109690 -0.035290 0.051610 0.062010
31-Mar-88 -0.035460 -0.054550 -0.064360 0.055560 -0.078010 0.089270 -0.017060 0.034370
29-Apr-88 0.029410 0.019420 0.000000 0.106880 -0.038460 -0.067420 0.011000 0.015250
31-May-88 -0.042860 -0.085710 0.031750 -0.086240 0.032320 -0.048190 0.000940 -0.017020
30-Jun-88 0.159400 0.093750 0.113990 0.275100 0.070310 -0.008610 0.051390 0.048480
29-Jul-88 -0.006490 -0.067310 0.013950 0.004720 -0.036500 0.025640 -0.007180 0.000550
31-Aug-88 -0.039220 -0.041240 -0.050460 -0.015720 0.038180 -0.050000 -0.027940 -0.023710
30-Sep-88 0.084080 0.028670 0.039020 -0.003190 0.036760 0.017370 0.037280 0.018700
31-Oct-88 -0.006330 0.084210 0.051640 0.051280 -0.028370 0.157630 0.017650 -0.011780
30-Nov-88 -0.057320 0.029130 -0.049550 -0.036700 -0.065400 -0.069770 -0.016400 -0.036700
30-Dec-88 0.042970 -0.038100 -0.090050 0.053970 0.015750 0.105000 0.020800 0.019540
31-Jan-89 0.169930 0.178220 0.270830 0.078310 0.116280 0.193180 0.065940 0.063130
28-Feb-89 -0.044690 0.001010 -0.037190 0.032400 0.028060 0.051430 -0.016360 0.002790
31-Mar-89 -0.038830 0.025420 -0.047210 0.006110 -0.047620 -0.009090 0.021550 0.017030
28-Apr-89 -0.006130 -0.041320 0.040540 -0.055060 0.014290 0.018350 0.048530 0.030680
31-May-89 0.154320 0.068710 0.060610 0.137630 0.070700 0.090090 0.039650 0.027370
30-Jun-89 -0.003420 0.034190 -0.061730 -0.017010 -0.026490 0.069420 -0.004980 -0.008330
31-Jul-89 0.178380 0.107440 0.232460 0.110000 0.258500 0.147290 0.077720 0.031610
31-Aug-89 0.087160 0.034850 -0.039430 0.062610 0.016430 -0.013510 0.022280 0.019290
29-Sep-89 0.008270 -0.083970 -0.108210 -0.063830 -0.160430 0.009590 -0.001750 0.004470
31-Oct-89 -0.148150 -0.075000 -0.025100 -0.069580 -0.121020 -0.122450 -0.029380 -0.050950
30-Nov-89 0.103260 -0.034950 -0.086580 0.050940 -0.014200 0.015500 0.017850 -0.008220
29-Dec-89 -0.096750 0.009430 -0.004740 -0.071810 0.000000 -0.061070 0.018280 -0.012170
31-Jan-90 -0.115380 -0.028040 -0.133330 -0.077370 -0.037040 -0.012360 -0.070050 -0.045810
28-Feb-90 0.055900 0.060770 0.000000 0.029540 0.038770 0.148760 0.014980 0.015750
30-Mar-90 0.137410 -0.038460 -0.033330 0.008200 0.044780 0.075400 0.024150 0.022040
30-Apr-90 -0.104170 -0.020000 -0.034480 0.028460 -0.042860 -0.013420 -0.028160 -0.026720
31-May-90 0.203490 0.179290 0.138550 0.129220 0.119700 0.118910 0.088870 0.046650
29-Jun-90 -0.007920 -0.009170 -0.047620 0.024650 0.013420 -0.036590 -0.004300 0.005380
31-Jul-90 -0.058820 -0.083330 0.061110 -0.163230 -0.066230 0.000000 -0.009380 -0.027290
31-Aug-90 -0.081460 -0.097780 -0.132280 -0.068180 -0.113190 -0.101270 -0.091730 -0.109790
28-Sep-90 -0.268570 -0.142860 -0.091460 -0.121950 -0.096770 -0.116340 -0.053870 -0.080490
31-Oct-90 0.046880 -0.097220 -0.046980 -0.012630 -0.151790 -0.048000 -0.012420 -0.056330
30-Nov-90 0.119400 0.124920 0.107140 0.092780 0.126740 0.084030 0.065980 0.036650
31-Dec-90 0.095730 0.125000 0.070970 0.025940 0.037740 0.144500 0.029540 -0.003870
31-Jan-91 0.202450 0.135800 0.186750 0.101150 0.054550 0.074830 0.049040 0.085250
28-Feb-91 0.168370 0.142610 0.172590 0.184870 0.319310 0.219240 0.075690 0.133650
28-Mar-91 0.136940 0.125000 0.218340 0.177300 0.197370 0.270830 0.028780 0.077820
30-Apr-91 0.019310 0.034190 0.089610 -0.015060 0.054950 0.057380 0.003350 0.031020
31-May-91 0.075760 0.094630 0.086090 0.087560 -0.041460 0.063950 0.040590 0.030340
28-Jun-91 -0.099720 -0.128000 -0.064020 -0.103110 -0.142080 -0.041090 -0.044240 -0.034500
31-Jul-91 0.198820 0.110090 0.081430 0.161200 0.095540 0.034290 0.046830 0.034920
30-Aug-91 0.025220 -0.014880 0.018180 0.029970 0.081630 0.038670 0.026910 0.028570
30-Sep-91 0.202900 0.016950 0.148810 0.063490 0.118920 0.114260 -0.011060 0.008670
31-Oct-91 0.076310 0.058330 0.072540 0.081290 0.202900 0.105260 0.017720 0.023860
29-Nov-91 -0.126870 -0.039760 -0.067630 -0.016170 -0.152610 -0.125540 -0.037270 -0.025390
31-Dec-91 0.299660 0.182610 0.231770 0.197180 0.335070 0.217820 0.107040 0.036450
31-Jan-92 -0.056110 0.066180 -0.031710 -0.110040 -0.016040 0.165530 -0.001650 0.149480 0.32%
28-Feb-92 -0.066430 0.080000 -0.019650 -0.008850 0.080430 -0.003500 0.013290 0.052010 0.32%
31-Mar-92 -0.088760 -0.077420 -0.015660 -0.013390 -0.045450 0.128840 -0.023680 -0.014120 0.34%
30-Apr-92 -0.163220 -0.006990 -0.109090 -0.110860 -0.142860 -0.135510 0.013850 -0.032890 0.33%
29-May-92 0.098770 0.006690 -0.004080 0.050690 0.049140 -0.086490 0.006520 0.005500 0.30%
30-Jun-92 -0.078430 -0.022220 0.041240 -0.024330 0.023670 -0.014910 -0.019240 -0.039700 0.31%
31-Jul-92 -0.006130 -0.045450 0.019800 0.097260 0.069360 0.006020 0.039930 0.027280 0.30%
31-Aug-92 0.043460 -0.014290 -0.030580 -0.075180 -0.135350 -0.071860 -0.020760 -0.024440 0.26%
30-Sep-92 -0.071430 0.016260 0.020150 -0.051850 -0.106920 -0.113030 0.012420 0.011930 0.26%
30-Oct-92 0.115380 0.024000 0.093830 0.031250 0.140850 0.116790 0.010900 0.016320 0.22%
30-Nov-92 0.166670 0.100390 0.095710 0.075560 0.197280 0.209150 0.040190 0.067730 0.25%
31-Dec-92 -0.063840 0.045110 -0.014490 0.051890 0.010360 -0.032430 0.017540 0.035650 0.28%
29-Jan-93 0.089950 -0.014390 0.098740 0.015700 0.035900 0.137650 0.012330 0.066740 0.26%
26-Feb-93 -0.019420 -0.005840 0.046650 0.022080 -0.054650 -0.137930 0.005450 -0.007910 0.24%
31-Mar-93 0.080200 0.081480 0.045870 0.110500 0.089470 0.043660 0.025010 0.030880 0.25%
30-Apr-93 -0.050690 0.089040 -0.010530 -0.064450 -0.072460 0.005490 -0.025510 -0.012760 0.24%
28-May-93 -0.052430 0.133330 0.079430 0.102300 0.136460 0.038250 0.029420 0.037950 0.24%
30-Jun-93 0.051550 0.050280 0.069310 0.051440 0.073730 0.003370 0.005130 0.011970 0.25%
30-Jul-93 0.063730 0.026600 0.074070 0.019890 0.034330 -0.057890 -0.000760 0.014100 0.25%
31-Aug-93 0.010140 0.039900 0.118970 0.179360 0.067220 0.154410 0.039340 0.040400 0.26%
30-Sep-93 0.082570 0.042110 0.010310 0.049770 0.019530 0.087380 0.000610 0.025790 0.25%
29-Oct-93 0.046610 -0.111110 -0.007400 -0.096260 -0.099620 -0.035710 0.018040 0.040090 0.24%
30-Nov-93 -0.032390 0.018180 -0.063230 -0.084010 -0.088510 -0.027780 -0.017350 -0.024370 0.25%
31-Dec-93 -0.032970 -0.016850 -0.074380 -0.013940 0.014080 -0.050000 0.019450 0.016120 0.26%
31-Jan-94 0.016300 0.114290 0.073210 0.121910 0.097220 0.064960 0.031330 0.048920 0.25%
28-Feb-94 -0.048130 -0.106670 -0.094710 -0.156850 -0.097050 -0.070920 -0.024090 -0.009490 0.25%
31-Mar-94 -0.190340 -0.098270 -0.045050 -0.083080 -0.039400 -0.047010 -0.048550 -0.045740 -0.046020 0.28%
29-Apr-94 -0.013990 0.083330 0.000000 -0.010070 -0.037110 -0.007410 -0.040320 0.009830 -0.010820 0.30%
31-May-94 0.071770 0.019820 0.905660 0.063860 -0.025560 -0.007760 -0.003030 0.009500 -0.000270 0.32%
30-Jun-94 -0.080000 -0.165640 -0.166670 -0.128710 -0.102560 -0.048120 -0.053030 -0.016950 -0.027380 -0.026570 0.35%
29-Jul-94 0.014490 -0.051470 0.050000 -0.011360 0.046430 0.065930 0.032000 -0.068970 0.030410 0.015470 0.34%
31-Aug-94 0.150000 0.141090 0.039680 -0.275860 0.115490 0.155460 0.015190 0.185190 0.042830 0.036790 0.36%
30-Sep-94 -0.086210 -0.123290 -0.092310 -0.031750 -0.147690 -0.109320 -0.115380 -0.026250 -0.018650 0.004500 0.38%
31-Oct-94 0.013700 0.015630 0.050850 -0.311480 0.143830 0.052310 0.060870 -0.032260 0.014870 -0.002400 0.39%
30-Nov-94 -0.060000 -0.029230 -0.037100 -0.071430 -0.034920 -0.091010 -0.098690 -0.041670 -0.037070 -0.040570 0.42%
30-Dec-94 0.043480 -0.016000 -0.008400 0.410260 -0.059210 -0.002110 0.100920 -0.026090 0.012750 -0.012860 0.46%
31-Jan-95 0.020830 0.081300 0.152540 -0.181820 0.030910 0.019070 0.000000 0.095710 0.020550 0.027710 0.46%
28-Feb-95 0.224490 0.136840 0.069120 0.155560 0.119450 0.120580 0.166330 0.163930 0.039620 0.027990 0.49%
31-Mar-95 -0.016000 -0.013330 -0.006900 0.730770 0.036590 0.004750 -0.071940 -0.023100 0.026970 0.018740 0.48%
28-Apr-95 0.039770 0.114860 0.083330 0.566670 0.070590 0.031540 0.062020 0.014490 0.024880 0.025980 0.47%
31-May-95 -0.010930 0.038180 0.015380 0.517730 0.038680 0.095320 0.160290 0.050000 0.034160 0.020500 0.48%
30-Jun-95 0.000660 0.055560 0.107590 0.411210 0.117020 0.077180 -0.044300 0.059320 0.030840 0.048690 0.47%
31-Jul-95 0.088890 0.035090 0.017140 -0.006620 0.057140 0.023720 0.086090 0.122580 0.040670 0.055180 0.45%
31-Aug-95 -0.005100 -0.061020 0.064040 0.126670 0.042970 0.038860 -0.055120 0.011490 0.009340 0.030380 0.45%
29-Sep-95 0.098050 0.042420 -0.015870 -0.112430 0.084600 0.116550 0.262630 0.025970 -0.007270 0.036390 0.025990 0.44%
31-Oct-95 -0.042250 -0.075580 -0.064520 -0.373330 -0.112000 -0.099790 0.408000 0.120250 -0.011490 -0.011150 -0.040580 0.44%
30-Nov-95 0.065100 0.101890 0.042530 0.510640 0.004680 -0.008620 0.571020 0.011070 0.052330 0.042970 0.017200 0.45%
29-Dec-95 -0.115740 -0.086210 -0.060770 -0.098590 -0.081080 -0.065220 0.005420 -0.101120 -0.056570 0.015400 0.009780 0.44%
31-Jan-96 0.052360 0.157230 0.205880 -0.185550 0.120290 0.185740 0.181650 0.037500 0.035290 0.028090 0.033290 0.41%
29-Feb-96 -0.034830 0.060870 -0.032200 -0.155880 0.013190 -0.015750 -0.379000 -0.036390 0.005680 0.016050 0.031540 0.41%
29-Mar-96 0.032370 0.020620 0.080810 0.090910 0.054230 0.109330 -0.186270 0.106920 0.021240 0.011200 0.024120 0.41%
30-Apr-96 -0.055280 0.015150 -0.051400 0.333330 -0.006170 -0.030290 0.469880 -0.051140 0.005560 0.025130 0.057330 0.42%
31-May-96 0.090430 0.014180 -0.032510 0.156250 0.077430 -0.014930 0.115780 0.053650 0.005520 -0.058820 0.026720 0.061050 0.42%
28-Jun-96 0.064780 -0.020730 0.010200 0.094590 0.005790 -0.007580 -0.085400 0.085710 -0.001320 -0.250000 -0.007660 -0.030600 0.42%
31-Jul-96 0.009220 -0.047620 -0.065660 -0.172840 -0.068330 -0.004070 -0.365460 -0.115790 -0.077350 -0.142860 -0.053390 -0.078620 0.42%
30-Aug-96 0.022830 0.045560 -0.084320 0.044780 0.014490 -0.020510 -0.104430 -0.012140 0.119760 0.090280 0.032220 0.044770 0.43%
30-Sep-96 0.045890 -0.005350 0.224850 0.028570 0.075510 0.041880 0.310950 0.018180 0.041500 0.082800 0.052990 0.028970 0.43%
31-Oct-96 0.025750 0.016130 -0.028990 -0.034720 0.066410 0.013570 -0.045820 0.119050 0.005150 -0.070590 0.013940 -0.019970 0.42%
29-Nov-96 0.046030 0.170370 0.161190 0.165470 0.146620 0.196520 0.262710 0.154260 0.164100 -0.031650 0.065730 0.024770 0.42%
31-Dec-96 0.081120 0.013640 0.077250 -0.024690 0.015580 -0.049900 0.017900 0.041290 0.065550 -0.111110 -0.011350 -0.001420 0.42%
31-Jan-97 0.011150 0.076230 0.007970 0.050630 0.032210 0.003500 -0.334070 0.280000 0.070540 0.992650 0.053040 0.061720
28-Feb-97 0.044120 0.055000 0.065140 0.337350 0.144730 0.105030 -0.231020 -0.089580 0.034880 -0.107010 -0.000880 -0.010430
31-Mar-97 -0.128730 -0.125000 -0.130110 -0.135140 -0.105470 -0.069310 0.032190 -0.134100 -0.050040 -0.070250 -0.044390 -0.047880
30-Apr-97 0.138210 0.161900 0.162390 0.062500 0.110920 0.077870 -0.099790 0.203540 0.108700 0.213330 0.042460 -0.021390
30-May-97 0.060710 0.070490 0.207650 -0.245100 0.115790 0.075250 0.092380 0.048530 0.176470 -0.054950 0.071250 0.085170
30-Jun-97 0.156360 0.051920 -0.012200 -0.012990 0.125000 0.046820 0.084570 -0.014080 -0.001640 0.093020 0.044200 0.044240
31-Jul-97 -0.011700 0.199270 0.231480 0.065790 0.181340 0.220960 0.144250 0.148210 0.057080 0.602840 0.076310 0.048620
29-Aug-97 -0.059170 -0.031400 -0.121600 -0.006170 -0.124050 -0.082240 0.085180 -0.043550 0.002160 0.053100 -0.036450 0.027020
Source: Center for Research on Security Prices, University of Chicago.

ANSWER

 

Executive Summary

The company is on the verge of moving from a simple brokerage discounting firm to an investment services firm. At this juncture in the lifecycle of the company it is necessary the decision to invest is taken on grounds of sound financial analysis. The complete future of the company depends on the accuracy o the analysis. While using a comparable companies’ analysis it was found that using the internet services companies for comparison was more appropriate. The final asset beta calculated for the company was 1.61. The calculation was done by calculating the equity betas of the companies using the CAPM model and the monthly treasury bill was used as the risk-free rate. A further sensitivity analysis was done by changing the debt betas of the companies. If the investment cash flows are able to asset beta of 1.61 then the company should go ahead with the investment.

Ameritrade is at a unique point in its history where it has an opportunity to expand. It can move from being a brokerage firm to be a true internet technology giant. Currently it is a pioneer in deep discount brokerage with offerings like online internet trading and personal digital assistant. But to expand the business further the required capital is far more than the current capital that Ameritrade has. It will have to go to the market to raise the required capital and that translates to added risk. The company should be able to evaluate the cash flows from its new investment. But, the rate of return of those cash flows should be higher than the cost of capital that the company will have to face. Its choice of going ahead with the expansion completely depends on whether the analysed cost of capital is more or less than the rate of return the investment promises. Thus, it is absolutely necessary for the company to estimate the cost of capital accurately to make an informed decision. A wrong estimate would mean that the investment of $100 million in technology will simply be a sunk cost and may lead to bankruptcy.

To estimate the same, we start by estimating the beta of the firm using the comparable companies’ method on CAPM. The risk-free rate used will be the 3-month treasury rate which is available in exhibit 6 for each month separately. The reason for the choice is that we are already regressing on monthly data. Thus, a choice of a short-term lending rate and that too for each month will be more useful. The same has been used for both the segments. Similarly, monthly market risk premium has been used for the purpose of regression.

We use the value weighted index as that gives the wholistic picture of the market. The actual market works in terms of the values and switching from one stock to other has an impact from the values of both the stocks. We cannot trade 1 unit of stock A for 1 unit of stock B, it depends on the value and hence we also use the value weighted index. The market risk premium was regressed against the company returns minus the risk-free rate with the intercept set to zero as rf is the intercept which is subtracted already. The following is the result of the equity betas od the selected firms:

A G Edwards

Bear
Stearns

Merrill
Lynch

Morgan Stanley
Dean Witter

Paine
Webber

Raymond
James

Charls Schwab Corp

Quick and Reilly Group

Warterhouse Investor Services

Investment Services

Discount Brokerage Firms

Beta

1.388522

1.711195

1.866211

2.021235

1.73818

1.477707

2.444771

2.229844

3.023174

We now move forward to calculating the asset betas of the firm which is the final goal of the analysis. For calculating the same we need to decide on the debt to value rations of the companies. The choice is between the book values and the market values. As the final ai will be to calculate the asset beta we move ahead with the market values. As the current market value is what our company will have to face when it decides to raise debt. The book value is what the respective companies has to employ. That will not be as useful to us currently. The final Asset beta of the firms taking the dbtbeta 0 is as follows:

A G Edwards

Bear
Stearns

Merrill
Lynch

Morgan Stanley
Dean Witter

Paine
Webber

Raymond
James

Charls Schwab Corp

Quick and Reilly Group

Warterhouse Investor Services

Investment Services

Discoun Brokage Firms

Asset Beta

1.388522

1.047623813

1.106762071

1.179067105

1.013949944

1.439710503

2.317145121

2.22984449

2.177739581

A further analysis was done taking the debt beta from 0 to 2.5. The results of the same are as follows:

Debt Beta

A G Edwards

Bear
Stearns

Merrill
Lynch

Morgan Stanley
Dean Witter

Paine
Webber

Raymond
James

Charls Schwab Corp

Quick and Reilly Group

Warterhouse Investor Services

0

1.388522

1.047623813

1.106762071

1.179067105

1.013949944

1.439710503

2.317145121

2.22984449

2.177739581

0.5

1.388522

1.297623813

1.366762071

1.444067105

1.278949944

1.459710503

2.357145121

2.22984449

2.367739581

1

1.388522

1.547623813

1.626762071

1.709067105

1.543949944

1.479710503

2.397145121

2.22984449

2.557739581

1.5

1.388522

1.797623813

1.886762071

1.974067105

1.808949944

1.499710503

2.437145121

2.22984449

2.747739581

2

1.388522

2.047623813

2.146762071

2.239067105

2.073949944

1.519710503

2.477145121

2.22984449

2.937739581

2.5

1.388522

2.297623813

2.406762071

2.504067105

2.338949944

1.539710503

2.517145121

2.22984449

3.127739581

We can see that the asset beta for the discount brokerage firms is more than that of the investment services firms as there is a diversification of business in case of the later. They do not only depend on one service which is the case for discount brokerage firms.

As our company is planning to move from discount brokerage to investment services, the choice of comparable companies to be investment services seems more appropriate. Further A G Edwards and Raymond James will be removed from the analysis as their debt to capital value is too less when compared to our company and will skew the results. The debt beta of 1 seems appropriate. At this value the asset beta which is the average of the remaining 4 firms is 1.61. This should be used by the company for further analysis.

Comparable Firms Equity beta

Date Treasury Bill (rf) VW NYSE,
AMEX, and
NASDAQ
Market Risk Premium   A G Edwards Bear
Stearns
Merrill
Lynch
Morgan Stanley
Dean Witter
Paine
Webber
Raymond
James
Charls Schwab Corp Quick and Reilly Group Warterhouse Investor Services     A G Edwards Bear
Stearns
Merrill
Lynch
Morgan Stanley
Dean Witter
Paine
Webber
Raymond
James
Charls Schwab Corp Quick and Reilly Group Warterhouse Investor Services
Investment Services Discoun Brokage Firms Investment Services Discoun Brokage Firms
R-Rf R-Rf
31-Jan-92 0.32% -0.001650 -0.004867 -0.059327 0.062963 -0.034927 -0.113257 -0.019257 0.162313 0.047483 -0.012226 -0.039580 -0.056110 0.066180 -0.031710 -0.110040 -0.016040 0.165530 0.050699588477366 -0.009009009009009 -0.036363636363636
28-Feb-92 0.32% 0.013290 0.010090 -0.069630 0.076800 -0.022850 -0.012050 0.077230 -0.006700 0.039937 0.039709 0.227932 -0.066430 0.080000 -0.019650 -0.008850 0.080430 -0.003500 0.043137254901961 0.042909090909091 0.231132075471698
31-Mar-92 0.34% -0.023680 -0.027038 -0.092118 -0.080778 -0.019018 -0.016748 -0.048808 0.125482 0.037995 0.001028 0.163308 -0.088760 -0.077420 -0.015660 -0.013390 -0.045450 0.128840 0.041353383458647 0.004385964912281 0.166666666666667
30-Apr-92 0.33% 0.013850 0.010508 -0.166562 -0.010332 -0.112432 -0.114202 -0.146202 -0.138852 -0.178504 -0.252250 -0.190534 -0.163220 -0.006990 -0.109090 -0.110860 -0.142860 -0.135510 -0.175162454873646 -0.248908296943231 -0.187192118226601
29-May-92 0.30% 0.006520 0.003495 0.095745 0.003665 -0.007105 0.047665 0.046115 -0.089515 0.010133 0.000696 0.051520 0.098770 0.006690 -0.004080 0.050690 0.049140 -0.086490 0.013157894736842 0.003720930232558 0.054545454545455
30-Jun-92 0.31% -0.019240 -0.022365 -0.081555 -0.025345 0.038115 -0.027455 0.020545 -0.018035 -0.189272 -0.026381 -0.215769 -0.078430 -0.022220 0.041240 -0.024330 0.023670 -0.014910 -0.186147186147186 -0.023255813953488 -0.21264367816092
31-Jul-92 0.30% 0.039930 0.036972 -0.009088 -0.048408 0.016842 0.094302 0.066402 0.003062 0.047467 -0.044625 0.026239 -0.006130 -0.045450 0.019800 0.097260 0.069360 0.006020 0.050425531914894 -0.041666666666667 0.029197080291971
31-Aug-92 0.26% -0.020760 -0.023402 0.040818 -0.016932 -0.033222 -0.077822 -0.137992 -0.074502 -0.088936 -0.023511 -0.211152 0.043460 -0.014290 -0.030580 -0.075180 -0.135350 -0.071860 -0.086294416243655 -0.020869565217391 -0.208510638297872
30-Sep-92 0.26% 0.012420 0.009795 -0.074055 0.013635 0.017525 -0.054475 -0.109545 -0.115655 -0.202625 0.022853 0.042830 -0.071430 0.016260 0.020150 -0.051850 -0.106920 -0.113030 -0.2 0.02547770700637 0.045454545454546
30-Oct-92 0.22% 0.010900 0.008725 0.113205 0.021825 0.091655 0.029075 0.138675 0.114615 0.126158 0.041303 0.084782 0.115380 0.024000 0.093830 0.031250 0.140850 0.116790 0.128333333333333 0.043478260869565 0.086956521739131
30-Nov-92 0.25% 0.040190 0.037682 0.164162 0.097882 0.093202 0.073052 0.194772 0.206642 0.225887 0.209635 0.325492 0.166670 0.100390 0.095710 0.075560 0.197280 0.209150 0.228395061728395 0.212142857142857 0.328
31-Dec-92 0.28% 0.017540 0.014765 -0.066615 0.042335 -0.017265 0.049115 0.007585 -0.035205 0.047476 -0.027406 -0.014823 -0.063840 0.045110 -0.014490 0.051890 0.010360 -0.032430 0.050251256281407 -0.024630541871921 -0.012048192771084
29-Jan-93 0.26% 0.012330 0.009763 0.087383 -0.016957 0.096173 0.013133 0.033333 0.135083 0.157625 0.088342 0.229141 0.089950 -0.014390 0.098740 0.015700 0.035900 0.137650 0.160191387559809 0.090909090909091 0.231707317073171
26-Feb-93 0.24% 0.005450 0.003033 -0.021837 -0.008257 0.044233 0.019663 -0.057067 -0.140347 0.067831 -0.031306 -0.037070 -0.019420 -0.005840 0.046650 0.022080 -0.054650 -0.137930 0.070247933884298 -0.028888888888889 -0.034653465346535
31-Mar-93 0.25% 0.025010 0.022552 0.077742 0.079022 0.043412 0.108042 0.087012 0.041202 0.124955 0.040811 0.048824 0.080200 0.081480 0.045870 0.110500 0.089470 0.043660 0.127413127413127 0.043269230769231 0.051282051282051
30-Apr-93 0.24% -0.025510 -0.027927 -0.053107 0.086623 -0.012947 -0.066867 -0.074877 0.003073 -0.103102 -0.076149 -0.099978 -0.050690 0.089040 -0.010530 -0.064450 -0.072460 0.005490 -0.100684931506849 -0.073732718894009 -0.097560975609756
28-May-93 0.24% 0.029420 0.027028 -0.054822 0.130938 0.077038 0.099908 0.134068 0.035858 0.073944 0.041389 0.470581 -0.052430 0.133330 0.079430 0.102300 0.136460 0.038250 0.076335877862596 0.043781094527363 0.472972972972973
30-Jun-93 0.25% 0.005130 0.002597 0.049017 0.047747 0.066777 0.048907 0.071197 0.000837 0.210233 0.157964 0.226824 0.051550 0.050280 0.069310 0.051440 0.073730 0.003370 0.212765957446808 0.160497607655502 0.229357798165138
30-Jul-93 0.25% -0.000760 -0.003252 0.061238 0.024108 0.071578 0.017398 0.031838 -0.060382 0.016807 0.062443 -0.017417 0.063730 0.026600 0.074070 0.019890 0.034330 -0.057890 0.019298245614035 0.064935064935065 -0.014925373134328
31-Aug-93 0.26% 0.039340 0.036782 0.007582 0.037342 0.116412 0.176802 0.064662 0.151852 0.131062 0.138905 0.296684 0.010140 0.039900 0.118970 0.179360 0.067220 0.154410 0.133620689655172 0.141463414634146 0.299242424242424
30-Sep-93 0.25% 0.000610 -0.001898 0.080062 0.039602 0.007802 0.047262 0.017022 0.084872 0.046921 0.033206 0.173445 0.082570 0.042110 0.010310 0.049770 0.019530 0.087380 0.049429657794677 0.035714285714286 0.175953079178886
29-Oct-93 0.24% 0.018040 0.015607 0.044177 -0.113543 -0.009833 -0.098693 -0.102053 -0.038143 0.002639 -0.012778 -0.059790 0.046610 -0.111110 -0.007400 -0.096260 -0.099620 -0.035710 0.005072463768116 -0.010344827586207 -0.057356608478803
30-Nov-93 0.25% -0.017350 -0.019892 -0.034932 0.015638 -0.065772 -0.086552 -0.091052 -0.030322 -0.081964 -0.045050 -0.185081 -0.032390 0.018180 -0.063230 -0.084010 -0.088510 -0.027780 -0.07942238267148 -0.042508710801394 -0.182539682539683
31-Dec-93 0.26% 0.019450 0.016833 -0.035587 -0.019467 -0.076997 -0.016557 0.011463 -0.052617 0.013070 0.093383 -0.177374 -0.032970 -0.016850 -0.074380 -0.013940 0.014080 -0.050000 0.015686274509804 0.096 -0.174757281553398
31-Jan-94 0.25% 0.031330 0.028822 0.013792 0.111782 0.070702 0.119402 0.094712 0.062452 -0.089149 -0.012998 -0.002508 0.016300 0.114290 0.073210 0.121910 0.097220 0.064960 -0.086640926640927 -0.010489510489511 0
28-Feb-94 0.25% -0.024090 -0.026607 -0.050647 -0.109187 -0.097227 -0.159367 -0.099567 -0.073437 -0.070313 -0.192764 -0.037811 -0.048130 -0.106670 -0.094710 -0.156850 -0.097050 -0.070920 -0.067796610169492 -0.190247349823322 -0.035294117647059
31-Mar-94 0.28% -0.045740 -0.048565 -0.193165 -0.101095 -0.085905 -0.042225 -0.049835 -0.051375 -0.025552 -0.099741 -0.143069 -0.190340 -0.098270 -0.083080 -0.039400 -0.047010 -0.048550 -0.022727272727273 -0.096916299559471 -0.140243902439024
29-Apr-94 0.30% 0.009830 0.006822 -0.016998 0.080322 -0.013078 -0.040118 -0.010418 -0.043328 0.055410 0.026260 -0.095207 -0.013990 0.083330 -0.010070 -0.037110 -0.007410 -0.040320 0.058418604651163 0.029268292682927 -0.092198581560284
31-May-94 0.32% 0.009500 0.006292 0.068562 0.016612 0.060652 -0.028768 -0.010968 -0.006238 0.062871 0.020299 -0.050083 0.071770 0.019820 0.063860 -0.025560 -0.007760 -0.003030 0.066079295154185 0.023507109004739 -0.046875
30-Jun-94 0.35% -0.027380 -0.030888 -0.083508 -0.169148 -0.106068 -0.051628 -0.056538 -0.020458 -0.185327 -0.059322 -0.126459 -0.080000 -0.165640 -0.102560 -0.048120 -0.053030 -0.016950 -0.181818181818182 -0.055813953488372 -0.122950819672131
29-Jul-94 0.34% 0.030410 0.026968 0.011048 -0.054912 0.042988 0.062488 0.028558 -0.072412 0.080195 -0.028072 -0.031479 0.014490 -0.051470 0.046430 0.065930 0.032000 -0.068970 0.083636363636364 -0.024630541871921 -0.02803738317757
31-Aug-94 0.36% 0.042830 0.039263 0.146433 0.137523 0.111923 0.151893 0.011623 0.181623 0.145966 0.183100 0.319510 0.150000 0.141090 0.115490 0.155460 0.015190 0.185190 0.149532710280374 0.186666666666667 0.323076923076923
30-Sep-94 0.38% -0.018650 -0.022442 -0.090002 -0.127082 -0.151482 -0.113112 -0.119172 -0.030042 -0.040377 -0.119176 -0.172909 -0.086210 -0.123290 -0.147690 -0.109320 -0.115380 -0.026250 -0.036585365853659 -0.115384615384615 -0.169117647058824
31-Oct-94 0.39% 0.014870 0.010995 0.009825 0.011755 0.139955 0.048435 0.056995 -0.036135 0.192581 -0.008706 0.137718 0.013700 0.015630 0.143830 0.052310 0.060870 -0.032260 0.196455696202532 -0.004830917874396 0.141592920353982
30-Nov-94 0.42% -0.037070 -0.041287 -0.064217 -0.033447 -0.039137 -0.095227 -0.102907 -0.045887 -0.103157 -0.038391 -0.120496 -0.060000 -0.029230 -0.034920 -0.091010 -0.098690 -0.041670 -0.098939929328622 -0.034174757281553 -0.116279069767442
30-Dec-94 0.46% 0.012750 0.008108 0.038838 -0.020642 -0.063852 -0.006752 0.096278 -0.030732 0.089476 0.141823 -0.144993 0.043480 -0.016000 -0.059210 -0.002110 0.100920 -0.026090 0.094117647058824 0.146464646464646 -0.140350877192982
31-Jan-95 0.46% 0.020550 0.015925 0.016205 0.076675 0.026285 0.014445 -0.004625 0.091085 0.144909 0.083481 0.179048 0.020830 0.081300 0.030910 0.019070 0.000000 0.095710 0.149534050179211 0.088105726872247 0.183673469387755
28-Feb-95 0.49% 0.039620 0.034770 0.219640 0.131990 0.114600 0.115730 0.161480 0.159080 0.104525 0.138146 0.193426 0.224490 0.136840 0.119450 0.120580 0.166330 0.163930 0.109375 0.142995951417004 0.198275862068966
31-Mar-95 0.48% 0.026970 0.022170 -0.020800 -0.018130 0.031790 -0.000050 -0.076740 -0.027900 0.085341 0.009486 -0.076742 -0.016000 -0.013330 0.036590 0.004750 -0.071940 -0.023100 0.090140845070423 0.014285714285714 -0.071942446043166
28-Apr-95 0.47% 0.024880 0.020138 0.035028 0.110118 0.065848 0.026798 0.057278 0.009748 0.059134 0.139625 -0.035749 0.039770 0.114860 0.070590 0.031540 0.062020 0.014490 0.063875968992248 0.144366197183099 -0.031007751937985
31-May-95 0.48% 0.034160 0.029410 -0.015680 0.033430 0.033930 0.090570 0.155540 0.045250 0.017148 0.152173 0.115250 -0.010930 0.038180 0.038680 0.095320 0.160290 0.050000 0.021897810218978 0.156923076923077 0.12
30-Jun-95 0.47% 0.030840 0.026157 -0.004023 0.050877 0.112337 0.072497 -0.048983 0.054637 0.248888 0.168987 0.309602 0.000660 0.055560 0.117020 0.077180 -0.044300 0.059320 0.253571428571429 0.173670212765957 0.314285714285714
31-Jul-95 0.45% 0.040670 0.036153 0.084373 0.030573 0.052623 0.019203 0.081573 0.118063 0.048589 0.046678 0.196570 0.088890 0.035090 0.057140 0.023720 0.086090 0.122580 0.053105413105413 0.051194539249147 0.201086956521739
31-Aug-95 0.45% 0.009340 0.004823 -0.009617 -0.065537 0.038453 0.034343 -0.059637 0.006973 0.006323 -0.031140 0.040732 -0.005100 -0.061020 0.042970 0.038860 -0.055120 0.011490 0.010840108401084 -0.026623376623377 0.045248868778281
29-Sep-95 0.44% 0.036390 0.031990 0.093650 0.038020 0.080200 0.112150 0.021570 -0.011670 0.239568 0.223025 0.109137 0.098050 0.042420 0.084600 0.116550 0.025970 -0.007270 0.243967828418231 0.22742474916388 0.11353711790393
31-Oct-95 0.44% -0.011150 -0.015542 -0.046642 -0.079972 -0.116392 -0.104182 0.115858 -0.015882 -0.214219 -0.227825 -0.229882 -0.042250 -0.075580 -0.112000 -0.099790 0.120250 -0.011490 -0.209827586206897 -0.223433242506812 -0.225490196078431
30-Nov-95 0.45% 0.042970 0.038520 0.060650 0.097440 0.000230 -0.013070 0.006620 0.047880 0.055659 0.066918 -0.004450 0.065100 0.101890 0.004680 -0.008620 0.011070 0.052330 0.060109289617486 0.071368421052632 0
29-Dec-95 0.44% 0.015400 0.010967 -0.120173 -0.090643 -0.085513 -0.069653 -0.105553 -0.061003 -0.174536 -0.196552 0.248731 -0.115740 -0.086210 -0.081080 -0.065220 -0.101120 -0.056570 -0.170103092783505 -0.192118226600985 0.253164556962025
31-Jan-96 0.41% 0.028090 0.023973 0.048243 0.153113 0.116173 0.181623 0.033383 0.031173 0.246318 0.130030 -0.049571 0.052360 0.157230 0.120290 0.185740 0.037500 0.035290 0.250434782608696 0.134146341463415 -0.045454545454546
29-Feb-96 0.41% 0.016050 0.011958 -0.038922 0.056778 0.009098 -0.019842 -0.040482 0.001588 0.010834 0.128381 0.038236 -0.034830 0.060870 0.013190 -0.015750 -0.036390 0.005680 0.014925373134328 0.13247311827957 0.042328042328042
29-Mar-96 0.41% 0.011200 0.007150 0.028320 0.016570 0.050180 0.105280 0.102870 0.017190 0.010656 0.119760 0.351280 0.032370 0.020620 0.054230 0.109330 0.106920 0.021240 0.014705882352941 0.123809523809524 0.355329949238579
30-Apr-96 0.42% 0.025130 0.020972 -0.059438 0.010992 -0.010328 -0.034448 -0.055298 0.001402 -0.055753 0.029740 0.081984 -0.055280 0.015150 -0.006170 -0.030290 -0.051140 0.005560 -0.051594202898551 0.033898305084746 0.086142322097378
31-May-96 0.42% 0.026720 0.022553 0.086263 0.010013 0.073263 -0.019097 0.049483 0.001353 -0.014371 0.108784 0.006178 0.090430 0.014180 0.077430 -0.014930 0.053650 0.005520 -0.010204081632653 0.112950819672131 0.010344827586207
28-Jun-96 0.42% -0.007660 -0.011868 0.060572 -0.024938 0.001582 -0.011788 0.081502 -0.005528 0.006101 -0.044799 0.009444 0.064780 -0.020730 0.005790 -0.007580 0.085710 -0.001320 0.010309278350516 -0.040590405904059 0.013651877133106
31-Jul-96 0.42% -0.053390 -0.057590 0.005020 -0.051820 -0.072530 -0.008270 -0.119990 -0.081550 -0.017465 -0.131123 0.009268 0.009220 -0.047620 -0.068330 -0.004070 -0.115790 -0.077350 -0.013265306122449 -0.126923076923077 0.013468013468014
30-Aug-96 0.43% 0.032220 0.027920 0.018530 0.041260 0.010190 -0.024810 -0.016440 0.115460 0.031969 0.029356 -0.005097 0.022830 0.045560 0.014490 -0.020510 -0.012140 0.119760 0.036269430051814 0.033656387665198 -0.000797342192691
30-Sep-96 0.43% 0.052990 0.048665 0.041565 -0.009675 0.071185 0.037555 0.013855 0.037175 -0.084325 -0.098342 0.009053 0.045890 -0.005350 0.075510 0.041880 0.018180 0.041500 -0.08 -0.094017094017094 0.013377926421405
31-Oct-96 0.42% 0.013940 0.009765 0.021575 0.011955 0.062235 0.009395 0.114875 0.000975 0.084955 -0.013609 -0.004175 0.025750 0.016130 0.066410 0.013570 0.119050 0.005150 0.089130434782609 -0.009433962264151
29-Nov-96 0.42% 0.065730 0.061555 0.041855 0.166195 0.142445 0.192345 0.150085 0.159925 0.205825 0.079825 -0.004175 0.046030 0.170370 0.146620 0.196520 0.154260 0.164100 0.21 0.084
31-Dec-96 0.42% -0.011350 -0.015517 0.076953 0.009473 0.011413 -0.054067 0.037123 0.061383 0.053685 0.048697 -0.004167 0.081120 0.013640 0.015580 -0.049900 0.041290 0.065550 0.057851239669422 0.052863436123348
A G Edwards Bear
Stearns
Merrill
Lynch
Morgan Stanley
Dean Witter
Paine
Webber
Raymond
James
Charls Schwab Corp Quick and Reilly Group Warterhouse Investor Services
Investment Services Discoun Brokage Firms
Beta 1.3885220263725 1.71119477530302 1.86621066829804 2.02123473652104 1.7381799891771 1.47770720869661 2.44477060605411 2.22984449044713 3.02317388019398
Average Beta 1.70050823406138 2.56592965889841
SUMMARY OUTPUT A G Edwards SUMMARY OUTPUT Morgan Stanley
Dean Witter
SUMMARY OUTPUT Charls Schwab Corp
Regression Statistics Regression Statistics Regression Statistics
Multiple R 0.466427502355096 Multiple R 0.653960255003007 Multiple R 0.533692190673532
R Square 0.217554614953213 R Square 0.427664015123597 R Square 0.284827354385914
Adjusted R Square 0.200605462410841 Adjusted R Square 0.410714862581225 Adjusted R Square 0.267878201843541
Standard Error 0.068376378427407 Standard Error 0.060715752179111 Standard Error 0.100591936630895
Observations 60 Observations 60 Observations 60
ANOVA ANOVA ANOVA
  df SS MS F Significance F   df SS MS F Significance F   df SS MS F Significance F
Regression 1 0.076697016043744 0.076697016043744 16.4046239233325 0.000153813448838 Regression 1 0.162519855496606 0.162519855496606 44.0863016812427 1.17754085879893E-08 Regression 1 0.237765671460765 0.237765671460765 23.497562458278 9.73344168919529E-06
Residual 59 0.275844418484034 0.004675329126848 Residual 59 0.217497751197838 0.003686402562675 Residual 59 0.597005525194087 0.010118737715154
Total 60 0.352541434527778 Total 60 0.380017606694444 Total 60 0.834771196654851
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A
A G Edwards 1.3885220263725 0.342822749823179 4.05026220426931 0.000151385010429 0.702535288472803 2.07450876427219 0.702535288472803 2.07450876427219 Morgan Stanley
Dean Witter
2.02123473652104 0.304414208508041 6.63975162797847 1.09839536637836E-08 1.41210331227205 2.63036616077003 1.41210331227205 2.63036616077003 Charls Schwab Corp 2.44477060605411 0.504343826317945 4.84742843766445 9.46520780891346E-06 1.43558094062455 3.45396027148367 1.43558094062455 3.45396027148367
SUMMARY OUTPUT Bear
Stearns
SUMMARY OUTPUT Paine
Webber
SUMMARY OUTPUT Quick and Reilly Group
Regression Statistics Regression Statistics Regression Statistics
Multiple R 0.600993052140226 Multiple R 0.530001089601883 Multiple R 0.54740542228264
R Square 0.361192648720825 R Square 0.280901154979183 R Square 0.299652696344436
Adjusted R Square 0.344243496178452 Adjusted R Square 0.26395200243681 Adjusted R Square 0.282703543802063
Standard Error 0.059091552667654 Standard Error 0.072214221472013 Standard Error 0.088518218839331
Observations 60 Observations 60 Observations 60
ANOVA ANOVA ANOVA
  df SS MS F Significance F   df SS MS F Significance F   df SS MS F Significance F
Regression 1 0.116485484924003 0.116485484924003 33.3596133980861 3.18311418980326E-07 Regression 1 0.120188360908716 0.120188360908716 23.0471349780739 1.15019951732019E-05 Regression 1 0.197798080887698 0.197798080887698 25.2439168281807 5.14426542762107E-06
Residual 59 0.206016884203775 0.003491811596674 Residual 59 0.307678733185728 0.005214893782809 Residual 59 0.462293028922772 0.007835475066488
Total 60 0.322502369127778 Total 60 0.427867094094444 Total 60 0.660091109810471
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Bear
Stearns
1.71119477530302 0.296270861995908 5.77577816385689 3.03671277978538E-07 1.11835814978699 2.30403140081906 1.11835814978699 2.30403140081906 Paine
Webber
1.7381799891771 0.3620647736946 4.80074316935138 1.11941683825687E-05 1.01369005044563 2.46266992790857 1.01369005044563 2.46266992790857 Quick and Reilly Group 2.22984449044713 0.44380910322951 5.02433247587983 4.98639543222995E-06 1.34178452613138 3.11790445476288 1.34178452613138 3.11790445476288
SUMMARY OUTPUT Merrill
Lynch
SUMMARY OUTPUT Raymond
James
SUMMARY OUTPUT Warterhouse Investor Services
Regression Statistics Regression Statistics Regression Statistics
Multiple R 0.670367388287325 Multiple R 0.46869855368598 Multiple R 0.480142215475107
R Square 0.449392435279169 R Square 0.219678334227329 R Square 0.230536547081344
Adjusted R Square 0.432443282736796 Adjusted R Square 0.202729181684956 Adjusted R Square 0.213587394538971
Standard Error 0.053638834234274 Standard Error 0.072317277132065 Standard Error 0.143416027169132
Observations 60 Observations 60 Observations 60
ANOVA ANOVA ANOVA
  df SS MS F Significance F   df SS MS F Significance F   df SS MS F Significance F
Regression 1 0.138546084451741 0.138546084451741 48.1543578045721 3.70585240102941E-09 Regression 1 0.086865976225154 0.086865976225154 16.6098447447034 0.000141401553711 Regression 1 0.363579320975531 0.363579320975531 17.676806125368 9.17080155753781E-05
Residual 59 0.169750347742704 0.002877124538012 Residual 59 0.308557525735957 0.005229788571796 Residual 59 1.21352125408966 0.020568156848977
Total 60 0.308296432194444 Total 60 0.395423501961111 Total 60 1.57710057506519
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%   Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A Intercept 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A
Merrill
Lynch
1.86621066829804 0.26893224052552 6.93933410382956 3.4266429124487E-09 1.32807849798755 2.40434283860852 1.32807849798755 2.40434283860852 Raymond
James
1.47770720869661 0.362581470038811 4.07551772719779 0.000139124674081 0.752183362968496 2.20323105442472 0.752183362968496 2.20323105442472 Warterhouse Investor Services 3.02317388019398 0.719053537692635 4.20437939836166 9.00789066777564E-05 1.584351074673 4.46199668571497 1.584351074673 4.46199668571497

 

Asset Beta

A G Edwards Bear
Stearns
Merrill
Lynch
Morgan Stanley
Dean Witter
Paine
Webber
Raymond
James
Charls Schwab Corp Quick and Reilly Group Warterhouse Investor Services
Investment Services Discoun Brokage Firms
Equity Beta 1.3885220263725 1.71119477530302 1.86621066829804 2.02123473652104 1.7381799891771 1.47770720869661 2.44477060605411 2.22984449044713 3.02317388019398
Debt/Capital 0.00 0.50 0.52 0.53 0.53 0.04 0.08 0.00 0.38
Asset Beta 1.3885220263725 1.04762381343639 1.10676207058395 1.17906710452444 1.01394994354236 1.4397105032322 2.31714512121477 2.22984449044713 2.17773958143811
Debt Beta 0
Tax 0.366594236064554
A G Edwards Bear
Stearns
Merrill
Lynch
Morgan Stanley
Dean Witter
Paine
Webber
Raymond
James
Charls Schwab Corp Quick and Reilly Group Warterhouse Investor Services
0 1.3885220263725 1.04762381343639 1.10676207058395 1.17906710452444 1.01394994354236 1.4397105032322 2.31714512121477 2.22984449044713 2.17773958143811
0.5 1.3885220263725 1.29762381343639 1.36676207058395 1.44406710452444 1.27894994354236 1.4597105032322 2.35714512121477 2.22984449044713 2.36773958143811
1 1.3885220263725 1.54762381343639 1.62676207058395 1.70906710452444 1.54394994354236 1.4797105032322 2.39714512121477 2.22984449044713 2.55773958143811
1.5 1.3885220263725 1.79762381343639 1.88676207058395 1.97406710452444 1.80894994354236 1.4997105032322 2.43714512121477 2.22984449044713 2.74773958143811
2 1.3885220263725 2.04762381343639 2.14676207058395 2.23906710452444 2.07394994354236 1.5197105032322 2.47714512121477 2.22984449044713 2.93773958143811
2.5 1.3885220263725 2.29762381343639 2.40676207058395 2.50406710452444 2.33894994354236 1.5397105032322 2.51714512121477 2.22984449044713 3.12773958143811
1.60685073302178

 

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