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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
Net Revenues
Transaction Income
Net Interest
Other
Total Net Revenues

1996

1995

$51,936,902
18,193,946
7,107,492
77,238,340

$36,469,561
11,477,878
6,391,314
54,338,753

$23,977,481
8,434,584
2,607,538
35,019,603

Expenses Excluding Interest


Employee Compensation
Commissions and Clearance
Communications
Occupancy and Equipment Cost
Advertising and Promotion
Provision for Losses
Amortization of Goodwill
Other
Total Expenses Excluding Interest

19,290,808
3,320,262
5,623,468
5,422,839
13,970,834
59,000
363,002
7,763,014
55,813,227

14,049,642
2,530,642
3,685,535
2,889,654
7,537,265
148,014
363,002
4,717,406
35,921,160

8,481,977
2,516,796
2,352,590
1,626,725
4,842,392
1,428,663
94,152
2,846,280
24,189,575

Income Before Income Taxes

21,425,113

18,417,593

10,830,028

7,602,964

7,259,248

3,798,881

$13,822,149

$11,158,345

$7,031,147

Taxes
Net Income
EPS

$1.00

Shares Outstanding

Source:

13,768,889

Ameritrade Annual Report, 1997.

$0.87
12,813,823

$0.55
12,813,823

Exhibit 2

Exhibit 2

Consolidated Annual Balance Sheets for the Fiscal Year Ending in September

1997
ASSETS
Cash and Cash Equivalents
Cash and Investments Segregated in Compliance with Federal Regulations
Receivable from Brokers, Dealers, and Clearing Organizations
Receivable from Customers and Correspondents
Furniture, Equipment, and Leasehold Improvements
Goodwill
Equity Investments
Other Investments
Deferred Income Taxes
Other Assets
Total Assets

$53,522,447
319,763,921
17,823,640
325,407,147
8,709,923
6,346,763
7,597,972
5,000,000
39,314
13,145,616
$757,356,743

1996

$15,767,170
175,668,497
15,096,862
166,075,055
3,746,178
6,709,765
7,157,783
5,000,000
444,378
6,013,544
$401,679,232

LIABILITIES AND STOCKHOLDERS' EQUITY


Liabilities:
Payable to Brokers, Dealers, and Clearing Organizations
Payable to Customers and Correspondents
Accounts Payable and Accrued Liabilities
Notes Payable to Bank
Income Taxes Payable

1,404,999
666,279,440
19,252,931
-3,430,279

1,193,479
356,942,970
7,221,008
4,853,000
806,711

Total Liabilities

690,367,649

371,017,168

Stockholders' Equity:
Class A Common Stock
Class B Common Stock
Additional Paid in Capital
Retained Earnings

131,534
13,644
23,297,506
43,546,410

114,494
13,644
809,665
29,724,261

Total Stockholders' Equity

66,989,094

30,662,064

Total Liabilities and Stockholders' Equity

Source:

$757,356,743

Ameritrade Annual Report, 1997.

$401,679,232

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
1-Year Bonds
5-Year Bonds
10-Year Bonds
20-Year Bonds
30-Year Bonds

5.24%
5.59%
6.22%
6.34%
6.69%
6.61%

Historic Average Total Annual Returns on U.S. Government Securities and Common
Stocks (1950-1996)

T-Bills
Intermediate Bondsa
Long-term Bondsb
Large Company Stocksc
Small Company Stocksd

Average Annual Return

Standard Deviation

5.2%
6.4%
6.0%
14.0%
17.8%

3.0%
6.6%
10.8%
16.8%
25.6%

Historic Average Total Annual Returns on U.S. Government Securities and Common
Stocks (1929-1996)

T-Bills
Intermediate Bondsa
Long-term Bondsb
Large Company Stocksc
Small Company Stocksd

Average Annual Return

Standard Deviation

3.8%
5.4%
5.5%
12.7%
17.7%

3.3%
5.8%
9.2%
20.3%
34.1%

Sources: Yields are from Datastream, historical data are from Ibbotson Associates, SBBI 2000
Yearbook .
a

Portfolio of U.S. Government bonds with maturity near 5 years.


Portfolio of U.S. Government bonds with maturity near 20 years.
c
Standard & Poor's 500 Stock Price Index.
d
A subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisor's
b

Exhibit 4

Exhibit 4

Selected Data for Comparable Firms


Debt/Value

Firm Name (Industry)


A G Edwards (Investment Services) a
Bear Stearns (Investment Services)
Charles Schwab Corp (Discount Brokerage)
E*Trade (Discount Brokerage)
Lehman Brothers (Investment Services)
Mecklermedia (Internet)
Merrill Lynch & Co (Investment Services)
Morgan Stanley Dean Witter (Investment Services)
Netscape (Internet)
Paine Webber (Investment Service)
Quick & Reilly Group (Discount Brokerage)
Raymond James Financial (Investment Services)
Waterhouse Investor Srvcs (Discount Brokerage)
Yahoo! (Internet)

Source:

Debt/Capital

(Market Values)
Average
1992-1996
Current
0.00
0.60
0.05
0.00
0.79
0.00
0.57
0.57
0.00
0.51
0.00
0.05
NA
0.00

0.00
0.50
0.08
NA
NA
0.00b
0.52
0.53
NA
0.53
0.00
0.04
0.38
NA

Compustat; Standard & Poor's; company public filings.

Investment Services includes brokerage, asset management, investment banking, and trading.
Indicates average over 1993-1996.
c
Indicates average over 1992-1995.
b

(Book Values)
Average
1992-1996
Current
0.00
0.69
0.25
0.00
0.80
0.00
0.77
0.70
0.00
0.63
0.00
0.07
NA
0.00

0.00
0.60
0.30
NA
0.79b
0.00b
0.65
0.63
NA
0.58
0.00
0.06
0.70c
NA

Brokerage
Revenues (%)
57
35
82
95
13
0
37
12
0
46
81
51
99
0

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.425087415
R Square
0.18069931
Adjusted R Square
0.166573436
Standard Error
0.106900147
Observations
60
ANOVA
df
Regression
Residual
Total

1
58
59

SS
0.146183303
0.662803197
0.8089865

MS
F
Significance F
0.146183303 12.79208 0.00071031
0.011427641

Coefficients Standard Error


t Stat
P-value
Lower 95%
Intercept
-0.00676842
0.015316846 -0.441894076 0.660209 -0.03742842
X Variable 12.009972623
0.561978316 3.576601744 0.00071 0.885050803

Upper 95%
0.023891575
3.134894443

Lower 95.0%
-0.0374284
0.8850508

Upper 95.0%
0.023891575
3.134894443

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.482222
R Square 0.232538
Adjusted R Square
0.219306
Standard Error
0.104768
Observations
60
ANOVA
df
Regression
Residual
Total

SS
MS
F
Significance F
1 0.192896 0.192896 17.57379 9.56E-05
58 0.636628 0.010976
59 0.829524

Coefficients
Standard Error t Stat
Intercept
-0.01608 0.015011 -1.07126
X Variable 1 2.308888 0.55077 4.19211

P-value Lower 95%Upper 95%Lower 95.0%


Upper 95.0%
0.28849 -0.04613 0.013967 -0.04613 0.013967
9.56E-05 1.206402 3.411373 1.206402 3.411373

Exhibit 5

Exhibit 5

Date

Stock Price Data for Discount Brokers

Shares

31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

13,153
13,153
13,153
14,518
14,518
14,518

Date

Shares

30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89
31-Mar-89
28-Apr-89
31-May-89
30-Jun-89
31-Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90

29,121
29,121
29,121
25,388
25,388
25,388
25,388
25,388
25,388
25,294
25,294
25,294
25,328
25,328
25,328
25,354
25,354
25,354
25,354
25,354
25,354
25,352
25,352
25,352
25,386
25,386
25,386
25,332
25,332
25,332
25,332
25,332
25,332
25,099
25,099

Ameritrade
Price
15.625
12.500
14.000
15.750
15.375
18.813

Charles Schwab
Price
15.875
7.875
6.625
6.000
6.500
9.000
7.375
7.625
6.875
7.250
7.500
6.750
6.750
7.500
6.750
6.750
10.250
8.625
8.875
10.125
11.750
11.000
16.500
15.750
14.000
13.000
12.500
13.875
13.500
15.250
17.000
15.125
15.750
15.250
13.625

Dividend

Stock Split

1.000
-

Dividend Stock Split x


0.030
0.030
0.030
0.030
0.030
0.030

for y

Exhibit 5

31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91
29-Nov-91
31-Dec-91
31-Jan-92
28-Feb-92
31-Mar-92
30-Apr-92
29-May-92
30-Jun-92
31-Jul-92
31-Aug-92
30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31-Aug-93
30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94

25,099
25,255
25,255
25,255
24,464
24,464
24,464
24,464
24,464
24,464
24,435
24,435
24,435
25,596
25,596
25,596
38,394
38,394
38,394
38,479
38,479
38,479
38,626
38,626
38,626
38,149
38,149
38,149
37,741
37,741
37,741
37,741
37,741
37,741
56,612
56,612
56,612
57,625
57,625
57,815
57,815
57,815
57,815
57,815
57,815
57,815
57,114
57,114
57,114
56,829
56,829
57,325

12.625
11.375
12.625
11.875
11.375
16.000
18.250
20.250
18.125
22.500
24.750
27.500
28.375
31.125
37.750
32.750
30.375
31.875
33.250
34.625
28.500
28.875
23.500
24.625
22.500
18.000
20.250
24.875
26.125
30.250
32.375
36.500
32.750
35.250
28.500
29.000
32.875
34.500
34.625
31.875
32.375
29.500
27.500
26.875
28.375
30.250
24.750
26.750
30.750
29.625
35.375
31.875

0.040
0.040
0.040
0.050
0.060
0.040
0.060
0.060
0.060
0.060
0.075
0.050
0.050
0.070
0.070
0.070
0.070
-

10

3
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
3
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

Exhibit 5

30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29-Dec-95
31-Jan-96
29-Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96
30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97
28-Feb-97
31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

57,325
57,325
57,325
85,988
85,988
85,988
85,896
85,896
87,061
174,122
174,122
174,678
174,678
174,678
174,678
174,678
174,032
174,032
174,989
174,989
174,989
175,166
175,166
175,166
175,173
175,173
175,173
175,173
175,068
175,068
175,813
176,422
176,422

34.875
40.000
44.375
32.250
34.250
35.000
43.875
46.125
46.625
29.000
22.875
24.250
20.125
25.125
25.500
25.875
24.500
24.250
24.500
24.125
25.000
23.000
25.000
30.250
32.000
37.500
37.500
32.000
36.625
40.625
40.500
47.000
42.750

Date

Shares

E*Trade
Price

30-Aug-96
30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97
28-Feb-97
31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

29,393
29,539
29,539
29,539
29,545
29,545
29,545
30,440
30,440
30,440
30,958
30,958
30,958

10.500
13.188
11.125
10.938
11.500
17.625
24.000
18.000
15.000
17.625
19.625
30.500
32.125

0.090
0.060
0.080
0.040
0.040
0.040
0.050
0.050
0.050
0.050
0.050

1
1
1
3
1
1
1
1
1
3
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

Dividend Stock Split x


-

11

1
1
1
2
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

for y

Exhibit 5

Date

Shares

31-Jan-84
29-Feb-84
30-Mar-84
30-Apr-84
31-May-84
29-Jun-84
31-Jul-84
31-Aug-84
28-Sep-84
31-Oct-84
30-Nov-84
31-Dec-84
31-Jan-85
28-Feb-85
29-Mar-85
30-Apr-85
31-May-85
28-Jun-85
31-Jul-85
30-Aug-85
30-Sep-85
31-Oct-85
29-Nov-85
31-Dec-85
31-Jan-86
28-Feb-86
31-Mar-86
30-Apr-86
30-May-86
30-Jun-86
31-Jul-86
29-Aug-86
30-Sep-86
31-Oct-86
28-Nov-86
31-Dec-86
30-Jan-87
27-Feb-87
31-Mar-87
30-Apr-87
29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87

6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
6,318
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
11,149
16,724
16,724
9,477
9,477
9,477
9,477
9,477
9,477
9,477

Quick & Reilly


Price
17.625
15.000
14.875
17.125
17.375
18.000
14.750
18.000
17.000
17.875
15.250
15.500
23.375
23.750
23.125
20.625
22.625
24.000
24.125
22.875
20.125
22.250
25.500
32.500
36.375
39.125
39.000
30.375
33.375
35.500
29.000
28.750
23.875
32.125
29.500
26.750
36.125
36.875
36.000
21.375
21.500
19.250
20.250
24.625
23.000
12.125
11.625
12.500

Dividend Stock Split x


0.050
0.050
0.050
0.050
0.110
0.060
0.060
0.060
0.170
0.070
0.070
0.070
0.200
0.055
0.055
0.055
-

12

for y

Exhibit 5

29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89
31-Mar-89
28-Apr-89
31-May-89
30-Jun-89
31-Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91
29-Nov-91
31-Dec-91
31-Jan-92
28-Feb-92
31-Mar-92
30-Apr-92

9,477
9,477
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,452
9,437
9,437
9,437
9,210
9,210
9,210
9,452
9,452
9,452
9,210
9,210
9,210
9,220
9,220
9,220
9,292
9,292

12.625
13.500
12.250
12.625
11.500
11.875
11.500
11.250
11.750
11.750
11.500
10.875
15.000
13.750
13.250
13.000
16.125
14.000
16.500
17.000
16.750
15.750
14.875
13.625
12.000
13.625
13.250
13.000
15.250
14.000
13.500
11.375
10.375
9.750
10.125
10.250
13.125
16.125
18.875
17.500
17.750
17.000
19.625
20.625
19.250
20.375
20.000
27.750
27.500
28.500
28.625
21.500

0.180
0.060
0.060
0.060
0.060
0.060
0.060
0.060
0.130
0.070
0.070
0.070
0.070
0.070
0.070
0.070
0.180
-

13

1
1
1
1

1
1
1
1

Exhibit 5

29-May-92
30-Jun-92
31-Jul-92
31-Aug-92
30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31-Aug-93
30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29-Dec-95
31-Jan-96
29-Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96

9,292
9,292
9,292
9,292
9,884
9,884
9,884
9,884
9,884
9,884
9,824
9,824
9,824
10,315
10,623
10,623
10,643
10,643
10,678
11,212
10,678
11,238
11,238
11,238
11,238
11,168
11,168
11,121
11,121
11,111
11,111
11,111
11,075
11,075
11,075
11,075
11,075
16,613
16,613
16,613
16,613
24,920
24,952
24,952
25,056
25,056
25,056
25,056
25,056
25,056
25,178
25,178

21.500
21.000
20.125
19.625
20.125
21.000
25.375
24.750
27.000
26.000
27.125
25.125
26.125
28.875
30.750
35.000
36.250
35.875
34.250
35.750
35.375
28.375
25.625
26.375
26.875
25.375
24.750
29.250
25.875
25.750
24.750
28.375
30.875
35.000
35.500
40.625
47.000
36.625
38.500
37.375
45.875
23.750
25.375
20.500
23.250
26.250
29.500
30.500
33.875
32.500
28.375
29.250

0.080
0.080
0.080
0.220
0.100
1.443
0.100
0.100
1.788
0.270
0.120
0.120
0.120
0.290
0.150
0.100
0.070
0.080
0.070
0.080

14

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
3
1
1
1
3
1
1
1
1
1
1
1
1
1
1

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
2
1
1
1
1
1
1
1
1
1
1

Exhibit 5

30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97
28-Feb-97
31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

25,178
25,178
25,178
25,178
25,173
25,173
37,760
37,760
37,760
38,606
38,664
38,664

Date

Waterhouse Investor Services


Shares
Price
Dividend

29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89
31-Mar-89
28-Apr-89
31-May-89
30-Jun-89
31-Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90

2,572
2,572
2,572
2,572
2,572
2,572
2,572
2,572
2,572
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,482
2,472
2,472
2,472
2,420
2,420
2,420
2,419
2,419
2,419
2,417
2,417
2,417
2,420
2,420

26.500
26.250
28.375
29.875
36.625
35.000
20.875
22.125
23.000
23.250
26.250
34.250

6.938
8.000
8.250
7.500
8.000
6.250
6.000
5.250
4.500
4.750
6.000
5.875
6.250
5.000
3.500
3.250
4.000
3.375
3.500
2.750
3.750
3.750
4.750
4.250
5.000
6.000
6.000
5.750
5.625
5.375
5.000
4.500
4.375
3.750
4.250

0.080
0.190
0.060
0.060

0.120
-

15

1
1
1
1

1
1
1
1

Stock Split

Exhibit 5

30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91
29-Nov-91
31-Dec-91
31-Jan-92
28-Feb-92
31-Mar-92
30-Apr-92
29-May-92
30-Jun-92
31-Jul-92
31-Aug-92
30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31-Aug-93
30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94
29-Jul-94

2,420
2,572
2,572
2,572
2,377
2,377
2,377
2,370
2,370
2,370
2,320
2,320
2,320
2,320
2,900
2,900
2,943
2,943
2,943
2,943
2,943
2,943
4,415
4,466
4,466
4,466
4,466
4,466
4,466
4,847
4,847
4,847
4,847
4,847
4,847
6,071
6,071
6,071
6,072
6,072
6,072
6,072
6,072
9,108
9,150
9,150
9,150
9,150
9,150
9,150
9,150
9,150

4.375
4.250
4.750
4.625
4.375
4.250
4.000
3.750
3.625
3.750
4.500
6.125
7.000
8.250
8.000
10.375
10.750
14.250
14.000
15.500
27.500
26.500
21.750
25.375
20.625
21.750
17.125
17.625
13.750
14.375
15.625
20.750
20.500
25.250
24.375
20.500
18.500
27.250
33.500
33.000
42.625
50.125
47.250
25.750
21.250
21.250
20.500
17.625
16.000
15.250
13.375
13.000

0.150
0.160
0.200
0.250
-

16

5 for 4

3 for 2

5 for 4

3 for 2

Exhibit 5

31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29-Dec-95
31-Jan-96
29-Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96
30-Sep-96

Source:

9,150
9,150
9,150
9,150
9,154
9,154
9,154
9,154
9,154
9,154
9,154
9,154
9,154
11,442
11,442
11,442
11,452
11,452
11,452
11,452
11,452
11,458
11,458
11,501
11,501
11,501

17.000
14.125
16.125
14.250
12.250
14.500
17.375
16.125
15.625
17.500
23.000
27.625
28.625
25.500
19.750
19.750
24.750
23.625
24.625
33.375
36.250
36.625
37.125
37.625
37.375
37.875

0.200
0.250
0.220
-

5 for 4

Center for Research on Security Prices, University of Chicago.

17

Exhibit 5

Returns on share 1992-1996

Market returns

18

Exhibit 5

0.048
0.041
0.040
-0.213
0.013
-0.229
0.048
-0.094
-0.250
0.114
0.186
0.048
0.138
0.066
0.113
-0.112
0.071
0.263
0.019
0.118
0.047
0.005
-0.086
0.015
-0.095
-0.073
-0.023
0.055
0.062
-0.222
0.077
0.130
-0.038
0.165
-0.110

-0.001650
0.013290
-0.023680
0.013850
0.006520
-0.019240
0.039930
-0.020760
0.012420
0.010900
0.040190
0.017540
0.012330
0.005450
0.025010
-0.025510
0.029420
0.005130
-0.000760
0.039340
0.000610
0.018040
-0.017350
0.019450
0.031330
-0.024090
-0.045740
0.009830
0.009500
-0.027380
0.030410
0.042830
-0.018650
0.014870
-0.037070

19

Exhibit 5

0.086
0.130
0.099
0.124
0.060
0.021
0.202
0.051
0.011
-0.108
-0.266
0.057
-0.205
0.201
0.015
0.014
-0.054
-0.010
0.010
-0.013
0.035
-0.087
0.082
0.174
0.055

0.012750
0.020550
0.039620
0.026970
0.024880
0.034160
0.030840
0.040670
0.009340
0.036390
-0.011150
0.042970
0.015400
0.028090
0.016050
0.011200
0.025130
0.026720
-0.007660
-0.053390
0.032220
0.052990
0.013940
0.065730
-0.011350

20

Exhibit 5

Returns on share 1992-1996

mkt returns

21

Exhibit 5

-0.009
0.041
0.004
-0.331

-0.001650
0.013290
-0.023680
0.013850

22

Exhibit 5

0.004
-0.024
-0.043
-0.021
0.025
0.042
0.176
-0.025
0.083
-0.030
0.041
-0.080
0.042
0.145
0.061
0.124
0.034
-0.010
-0.045
0.092
-0.011
-0.237
-0.107
0.028
0.023
-0.059
-0.025
0.158
-0.130
-0.005
-0.036
0.128
0.081
0.126
0.014
0.126
0.136
0.223
0.049
-0.027
0.185
-0.432
0.067
-0.238
0.118
0.117
0.110
0.033
0.102
-0.042
-0.145
0.033

0.006520
-0.019240
0.039930
-0.020760
0.012420
0.010900
0.040190
0.017540
0.012330
0.005450
0.025010
-0.025510
0.029420
0.005130
-0.000760
0.039340
0.000610
0.018040
-0.017350
0.019450
0.031330
-0.024090
-0.045740
0.009830
0.009500
-0.027380
0.030410
0.042830
-0.018650
0.014870
-0.037070
0.012750
0.020550
0.039620
0.026970
0.024880
0.034160
0.030840
0.040670
0.009340
0.036390
-0.011150
0.042970
0.015400
0.028090
0.016050
0.011200
0.025130
0.026720
-0.007660
-0.053390
0.032220

23

Exhibit 5

-0.104
-0.010
0.078
0.050

0.052990
0.013940
0.065730
-0.011350

24

Exhibit 5

25

Exhibit 5

26

Exhibit 6

Exhibit 6

Date
31-Jan-84
29-Feb-84
30-Mar-84
30-Apr-84
31-May-84
29-Jun-84
31-Jul-84
31-Aug-84
28-Sep-84
31-Oct-84
30-Nov-84
31-Dec-84
31-Jan-85
28-Feb-85
29-Mar-85
30-Apr-85
31-May-85
28-Jun-85
31-Jul-85
30-Aug-85
30-Sep-85
31-Oct-85
29-Nov-85
31-Dec-85
31-Jan-86
28-Feb-86
31-Mar-86
30-Apr-86
30-May-86
30-Jun-86

Stock Return Data for Investment Service firms, Internet Firms, and the Aggregate Stock Market

A G Edwards

Bear
Stearns

0.026040
-0.111680
-0.042290
0.012050
-0.017860
0.100610
0.016670
0.178140
-0.032710
0.024150
-0.066040
-0.017170
0.331610
-0.007780
-0.036860
-0.094260
0.085970
0.102500
-0.064640
-0.036590
-0.132490
0.088240
0.099100 -0.103450
0.141800 0.193590
0.039710 0.156760
0.149310 0.130840
0.083990 0.128720
-0.086830 0.065640
0.026070 0.003620
-0.066370 -0.168520

Lehman
Bros.

Meckler-media

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

-0.013280
-0.167330
-0.019140
-0.011710
-0.044780
0.119790
-0.076280
0.304570
-0.077820
0.023630
-0.091290
-0.013700
0.277780
-0.023190
-0.085820
-0.034290
0.089360
0.011720
0.040930
-0.052240
-0.141730
0.100920
0.127500
0.022300
0.152730
0.036590
0.012230
-0.102720
-0.008080
-0.054610

0.051150
0.013420
-0.062910

27

Paine
Webber

Raymond
James

-0.042860
-0.175370
0.073300
0.080510
-0.113730
0.084960
-0.090160
0.189190
-0.105300
0.029790
-0.041320
-0.046550
0.431820
-0.022220
0.026620
-0.123810
0.065220
-0.040140
-0.092530
-0.038430
-0.049180
0.008620
0.197440
0.003580
0.107140
0.068390
0.036360
-0.137430
0.051530
-0.116500

0.040000
-0.102560
-0.050000
-0.067670
-0.072580
-0.043480
0.018180
0.214290
-0.029410
0.015150
-0.179100
-0.054550
0.430770
0.027030
0.013160
-0.025970
0.013330
0.039470
0.017720
0.025000
-0.048780
0.000000
0.256410
0.015920
0.288890
0.103450
0.171880
-0.100000
-0.007410
-0.040600

Yahoo!

VW NYSE,
AMEX, and
NASDAQ
-0.012910
-0.039170
0.013450
0.002730
-0.052350
0.023590
-0.020350
0.112570
0.000390
0.000130
-0.010620
0.023790
0.085730
0.017000
-0.001930
-0.002180
0.055870
0.017190
-0.000540
-0.004800
-0.039650
0.044570
0.069270
0.043060
0.009860
0.072840
0.053880
-0.008060
0.050810
0.014300

Exhibit 6

Date
31-Jul-86
29-Aug-86
30-Sep-86
31-Oct-86
28-Nov-86
31-Dec-86
30-Jan-87
27-Feb-87
31-Mar-87
30-Apr-87
29-May-87
30-Jun-87
31-Jul-87
31-Aug-87
30-Sep-87
30-Oct-87
30-Nov-87
31-Dec-87
29-Jan-88
29-Feb-88
31-Mar-88
29-Apr-88
31-May-88
30-Jun-88
29-Jul-88
31-Aug-88
30-Sep-88
31-Oct-88
30-Nov-88
30-Dec-88
31-Jan-89
28-Feb-89

A G Edwards
-0.067630
0.104660
-0.094340
0.151040
-0.022620
-0.040740
0.334950
0.000000
0.044950
-0.122380
-0.023900
-0.104650
0.073390
0.027180
-0.071130
-0.337840
-0.174420
0.033330
0.080650
0.062390
-0.035460
0.029410
-0.042860
0.159400
-0.006490
-0.039220
0.084080
-0.006330
-0.057320
0.042970
0.169930
-0.044690

Bear
Stearns
-0.141920
0.160310
-0.145530
0.217050
-0.057320
-0.102160
0.318180
-0.022990
-0.024650
-0.121020
-0.028990
0.022090
-0.007350
0.103700
0.080270
-0.400000
-0.145830
0.023900
0.144580
0.157890
-0.054550
0.019420
-0.085710
0.093750
-0.067310
-0.041240
0.028670
0.084210
0.029130
-0.038100
0.178220
0.001010

Lehman
Bros.

Meckler-media

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

-0.039710
0.145110
-0.052810
0.195120
-0.074050
-0.075950
0.198630
-0.015430
-0.002920
-0.152050
-0.041380
0.010870
0.100360
0.032570
-0.031750
-0.357380
-0.153060
0.091460
0.072630
0.062500
-0.064360
0.000000
0.031750
0.113990
0.013950
-0.050460
0.039020
0.051640
-0.049550
-0.090050
0.270830
-0.037190

-0.070670
0.149050
-0.119400
0.160830
-0.030890
-0.129190
0.112910
-0.048610
0.036500
0.005280
0.020320
-0.003440
0.023490
0.069370
0.023730
-0.337560
-0.163930
0.148460
-0.019510
0.168660
0.055560
0.106880
-0.086240
0.275100
0.004720
-0.015720
-0.003190
0.051280
-0.036700
0.053970
0.078310
0.032400

28

Paine
Webber

Raymond
James

-0.010990
0.175930
-0.015590
0.172690
-0.075210
-0.063200
0.178570
-0.033540
-0.003500
-0.084210
-0.061150
0.020490
0.052210
0.023050
-0.029960
-0.474900
-0.021760
-0.128790
0.113040
0.109690
-0.078010
-0.038460
0.032320
0.070310
-0.036500
0.038180
0.036760
-0.028370
-0.065400
0.015750
0.116280
0.028060

-0.187500
0.038460
-0.092590
0.081630
-0.056600
-0.026800
0.319590
0.289060
0.261940
-0.116400
-0.101800
-0.031200
-0.062070
0.169120
-0.142640
-0.352940
-0.113640
-0.038460
0.137600
-0.035290
0.089270
-0.067420
-0.048190
-0.008610
0.025640
-0.050000
0.017370
0.157630
-0.069770
0.105000
0.193180
0.051430

Yahoo!

VW NYSE,
AMEX, and
NASDAQ
-0.059690
0.066390
-0.079140
0.049440
0.015170
-0.026540
0.128370
0.047630
0.023240
-0.017130
0.005220
0.043830
0.044050
0.037230
-0.020740
-0.224870
-0.072900
0.070410
0.045340
0.051610
-0.017060
0.011000
0.000940
0.051390
-0.007180
-0.027940
0.037280
0.017650
-0.016400
0.020800
0.065940
-0.016360

Exhibit 6

Date
31-Mar-89
28-Apr-89
31-May-89
30-Jun-89
31-Jul-89
31-Aug-89
29-Sep-89
31-Oct-89
30-Nov-89
29-Dec-89
31-Jan-90
28-Feb-90
30-Mar-90
30-Apr-90
31-May-90
29-Jun-90
31-Jul-90
31-Aug-90
28-Sep-90
31-Oct-90
30-Nov-90
31-Dec-90
31-Jan-91
28-Feb-91
28-Mar-91
30-Apr-91
31-May-91
28-Jun-91
31-Jul-91
30-Aug-91
30-Sep-91
31-Oct-91

A G Edwards
-0.038830
-0.006130
0.154320
-0.003420
0.178380
0.087160
0.008270
-0.148150
0.103260
-0.096750
-0.115380
0.055900
0.137410
-0.104170
0.203490
-0.007920
-0.058820
-0.081460
-0.268570
0.046880
0.119400
0.095730
0.202450
0.168370
0.136940
0.019310
0.075760
-0.099720
0.198820
0.025220
0.202900
0.076310

Bear
Stearns
0.025420
-0.041320
0.068710
0.034190
0.107440
0.034850
-0.083970
-0.075000
-0.034950
0.009430
-0.028040
0.060770
-0.038460
-0.020000
0.179290
-0.009170
-0.083330
-0.097780
-0.142860
-0.097220
0.124920
0.125000
0.135800
0.142610
0.125000
0.034190
0.094630
-0.128000
0.110090
-0.014880
0.016950
0.058330

Lehman
Bros.

Meckler-media

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

-0.047210
0.040540
0.060610
-0.061730
0.232460
-0.039430
-0.108210
-0.025100
-0.086580
-0.004740
-0.133330
0.000000
-0.033330
-0.034480
0.138550
-0.047620
0.061110
-0.132280
-0.091460
-0.046980
0.107140
0.070970
0.186750
0.172590
0.218340
0.089610
0.086090
-0.064020
0.081430
0.018180
0.148810
0.072540

0.006110
-0.055060
0.137630
-0.017010
0.110000
0.062610
-0.063830
-0.069580
0.050940
-0.071810
-0.077370
0.029540
0.008200
0.028460
0.129220
0.024650
-0.163230
-0.068180
-0.121950
-0.012630
0.092780
0.025940
0.101150
0.184870
0.177300
-0.015060
0.087560
-0.103110
0.161200
0.029970
0.063490
0.081290

29

Paine
Webber

Raymond
James

-0.047620
0.014290
0.070700
-0.026490
0.258500
0.016430
-0.160430
-0.121020
-0.014200
0.000000
-0.037040
0.038770
0.044780
-0.042860
0.119700
0.013420
-0.066230
-0.113190
-0.096770
-0.151790
0.126740
0.037740
0.054550
0.319310
0.197370
0.054950
-0.041460
-0.142080
0.095540
0.081630
0.118920
0.202900

-0.009090
0.018350
0.090090
0.069420
0.147290
-0.013510
0.009590
-0.122450
0.015500
-0.061070
-0.012360
0.148760
0.075400
-0.013420
0.118910
-0.036590
0.000000
-0.101270
-0.116340
-0.048000
0.084030
0.144500
0.074830
0.219240
0.270830
0.057380
0.063950
-0.041090
0.034290
0.038670
0.114260
0.105260

Yahoo!

VW NYSE,
AMEX, and
NASDAQ
0.021550
0.048530
0.039650
-0.004980
0.077720
0.022280
-0.001750
-0.029380
0.017850
0.018280
-0.070050
0.014980
0.024150
-0.028160
0.088870
-0.004300
-0.009380
-0.091730
-0.053870
-0.012420
0.065980
0.029540
0.049040
0.075690
0.028780
0.003350
0.040590
-0.044240
0.046830
0.026910
-0.011060
0.017720

Exhibit 6

Date
29-Nov-91
31-Dec-91
31-Jan-92
28-Feb-92
31-Mar-92
30-Apr-92
29-May-92
30-Jun-92
31-Jul-92
31-Aug-92
30-Sep-92
30-Oct-92
30-Nov-92
31-Dec-92
29-Jan-93
26-Feb-93
31-Mar-93
30-Apr-93
28-May-93
30-Jun-93
30-Jul-93
31-Aug-93
30-Sep-93
29-Oct-93
30-Nov-93
31-Dec-93
31-Jan-94
28-Feb-94
31-Mar-94
29-Apr-94
31-May-94
30-Jun-94

A G Edwards
-0.126870
0.299660
-0.056110
-0.066430
-0.088760
-0.163220
0.098770
-0.078430
-0.006130
0.043460
-0.071430
0.115380
0.166670
-0.063840
0.089950
-0.019420
0.080200
-0.050690
-0.052430
0.051550
0.063730
0.010140
0.082570
0.046610
-0.032390
-0.032970
0.016300
-0.048130
-0.190340
-0.013990
0.071770
-0.080000

Bear
Stearns

Lehman
Bros.

-0.039760
0.182610
0.066180
0.080000
-0.077420
-0.006990
0.006690
-0.022220
-0.045450
-0.014290
0.016260
0.024000
0.100390
0.045110
-0.014390
-0.005840
0.081480
0.089040
0.133330
0.050280
0.026600
0.039900
0.042110
-0.111110
0.018180
-0.016850
0.114290
-0.106670
-0.098270
0.083330
0.019820
-0.165640 -0.166670

Meckler-media

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

-0.067630
0.231770
-0.031710
-0.019650
-0.015660
-0.109090
-0.004080
0.041240
0.019800
-0.030580
0.020150
0.093830
0.095710
-0.014490
0.098740
0.046650
0.045870
-0.010530
0.079430
0.069310
0.074070
0.118970
0.010310
-0.007400
-0.063230
-0.074380
0.073210
-0.094710
-0.045050 -0.083080
0.000000 -0.010070
0.905660 0.063860
-0.128710 -0.102560

-0.016170
0.197180
-0.110040
-0.008850
-0.013390
-0.110860
0.050690
-0.024330
0.097260
-0.075180
-0.051850
0.031250
0.075560
0.051890
0.015700
0.022080
0.110500
-0.064450
0.102300
0.051440
0.019890
0.179360
0.049770
-0.096260
-0.084010
-0.013940
0.121910
-0.156850
-0.039400
-0.037110
-0.025560
-0.048120

30

Paine
Webber

Raymond
James

-0.152610
0.335070
-0.016040
0.080430
-0.045450
-0.142860
0.049140
0.023670
0.069360
-0.135350
-0.106920
0.140850
0.197280
0.010360
0.035900
-0.054650
0.089470
-0.072460
0.136460
0.073730
0.034330
0.067220
0.019530
-0.099620
-0.088510
0.014080
0.097220
-0.097050
-0.047010
-0.007410
-0.007760
-0.053030

-0.125540
0.217820
0.165530
-0.003500
0.128840
-0.135510
-0.086490
-0.014910
0.006020
-0.071860
-0.113030
0.116790
0.209150
-0.032430
0.137650
-0.137930
0.043660
0.005490
0.038250
0.003370
-0.057890
0.154410
0.087380
-0.035710
-0.027780
-0.050000
0.064960
-0.070920
-0.048550
-0.040320
-0.003030
-0.016950

Yahoo!

VW NYSE,
AMEX, and
NASDAQ
-0.037270
0.107040
-0.001650
0.013290
-0.023680
0.013850
0.006520
-0.019240
0.039930
-0.020760
0.012420
0.010900
0.040190
0.017540
0.012330
0.005450
0.025010
-0.025510
0.029420
0.005130
-0.000760
0.039340
0.000610
0.018040
-0.017350
0.019450
0.031330
-0.024090
-0.045740
0.009830
0.009500
-0.027380

Exhibit 6

Date
29-Jul-94
31-Aug-94
30-Sep-94
31-Oct-94
30-Nov-94
30-Dec-94
31-Jan-95
28-Feb-95
31-Mar-95
28-Apr-95
31-May-95
30-Jun-95
31-Jul-95
31-Aug-95
29-Sep-95
31-Oct-95
30-Nov-95
29-Dec-95
31-Jan-96
29-Feb-96
29-Mar-96
30-Apr-96
31-May-96
28-Jun-96
31-Jul-96
30-Aug-96
30-Sep-96
31-Oct-96
29-Nov-96
31-Dec-96
31-Jan-97
28-Feb-97

A G Edwards
0.014490
0.150000
-0.086210
0.013700
-0.060000
0.043480
0.020830
0.224490
-0.016000
0.039770
-0.010930
0.000660
0.088890
-0.005100
0.098050
-0.042250
0.065100
-0.115740
0.052360
-0.034830
0.032370
-0.055280
0.090430
0.064780
0.009220
0.022830
0.045890
0.025750
0.046030
0.081120
0.011150
0.044120

Bear
Stearns

Lehman
Bros.

-0.051470
0.141090
-0.123290
0.015630
-0.029230
-0.016000
0.081300
0.136840
-0.013330
0.114860
0.038180
0.055560
0.035090
-0.061020
0.042420
-0.075580
0.101890
-0.086210
0.157230
0.060870
0.020620
0.015150
0.014180
-0.020730
-0.047620
0.045560
-0.005350
0.016130
0.170370
0.013640
0.076230
0.055000

0.050000
0.039680
-0.092310
0.050850
-0.037100
-0.008400
0.152540
0.069120
-0.006900
0.083330
0.015380
0.107590
0.017140
0.064040
-0.015870
-0.064520
0.042530
-0.060770
0.205880
-0.032200
0.080810
-0.051400
-0.032510
0.010200
-0.065660
-0.084320
0.224850
-0.028990
0.161190
0.077250
0.007970
0.065140

Meckler-media
-0.011360
-0.275860
-0.031750
-0.311480
-0.071430
0.410260
-0.181820
0.155560
0.730770
0.566670
0.517730
0.411210
-0.006620
0.126670
-0.112430
-0.373330
0.510640
-0.098590
-0.185550
-0.155880
0.090910
0.333330
0.156250
0.094590
-0.172840
0.044780
0.028570
-0.034720
0.165470
-0.024690
0.050630
0.337350

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

0.046430
0.115490
-0.147690
0.143830
-0.034920
-0.059210
0.030910
0.119450
0.036590
0.070590
0.038680
0.117020
0.057140
0.042970
0.084600
-0.112000
0.004680
-0.081080
0.120290
0.013190
0.054230
-0.006170
0.077430
0.005790
-0.068330
0.014490
0.075510
0.066410
0.146620
0.015580
0.032210
0.144730

0.065930
0.155460
-0.109320
0.052310
-0.091010
-0.002110
0.019070
0.120580
0.004750
0.031540
0.095320
0.077180
0.023720
0.038860
0.116550
-0.099790
-0.008620
-0.065220
0.185740
-0.015750
0.109330
-0.030290
-0.014930
-0.007580
-0.004070
-0.020510
0.041880
0.013570
0.196520
-0.049900
0.003500
0.105030

31

0.262630
0.408000
0.571020
0.005420
0.181650
-0.379000
-0.186270
0.469880
0.115780
-0.085400
-0.365460
-0.104430
0.310950
-0.045820
0.262710
0.017900
-0.334070
-0.231020

Paine
Webber

Raymond
James

0.032000
0.015190
-0.115380
0.060870
-0.098690
0.100920
0.000000
0.166330
-0.071940
0.062020
0.160290
-0.044300
0.086090
-0.055120
0.025970
0.120250
0.011070
-0.101120
0.037500
-0.036390
0.106920
-0.051140
0.053650
0.085710
-0.115790
-0.012140
0.018180
0.119050
0.154260
0.041290
0.280000
-0.089580

-0.068970
0.185190
-0.026250
-0.032260
-0.041670
-0.026090
0.095710
0.163930
-0.023100
0.014490
0.050000
0.059320
0.122580
0.011490
-0.007270
-0.011490
0.052330
-0.056570
0.035290
0.005680
0.021240
0.005560
0.005520
-0.001320
-0.077350
0.119760
0.041500
0.005150
0.164100
0.065550
0.070540
0.034880

Yahoo!

-0.058820
-0.250000
-0.142860
0.090280
0.082800
-0.070590
-0.031650
-0.111110
0.992650
-0.107010

VW NYSE,
AMEX, and
NASDAQ
0.030410
0.042830
-0.018650
0.014870
-0.037070
0.012750
0.020550
0.039620
0.026970
0.024880
0.034160
0.030840
0.040670
0.009340
0.036390
-0.011150
0.042970
0.015400
0.028090
0.016050
0.011200
0.025130
0.026720
-0.007660
-0.053390
0.032220
0.052990
0.013940
0.065730
-0.011350
0.053040
-0.000880

Exhibit 6

Date

A G Edwards

31-Mar-97
30-Apr-97
30-May-97
30-Jun-97
31-Jul-97
29-Aug-97

Source:

Bear
Stearns

Lehman
Bros.

-0.128730 -0.125000 -0.130110


0.138210 0.161900 0.162390
0.060710 0.070490 0.207650
0.156360 0.051920 -0.012200
-0.011700 0.199270 0.231480
-0.059170 -0.031400 -0.121600

Meckler-media

Merrill
Lynch

Morgan Stanley
Dean Witter
Netscape

-0.135140 -0.105470
0.062500 0.110920
-0.245100 0.115790
-0.012990 0.125000
0.065790 0.181340
-0.006170 -0.124050

Paine
Webber

Raymond
James

Yahoo!

-0.069310 0.032190 -0.134100 -0.050040 -0.070250


0.077870 -0.099790 0.203540 0.108700 0.213330
0.075250 0.092380 0.048530 0.176470 -0.054950
0.046820 0.084570 -0.014080 -0.001640 0.093020
0.220960 0.144250 0.148210 0.057080 0.602840
-0.082240 0.085180 -0.043550 0.002160 0.053100

Center for Research on Security Prices, University of Chicago.

32

VW NYSE,
AMEX, and
NASDAQ
-0.044390
0.042460
0.071250
0.044200
0.076310
-0.036450

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
0.005760
-0.053810
0.007100
-0.019420
-0.050770
0.013800
-0.047450
0.089620
0.000270
-0.020890
-0.031410
0.005050
0.122760
0.047140
-0.008530
-0.011290
0.022930
0.003470
0.019510
-0.003410
-0.056140
0.018960
0.053270
0.029130
0.043400
0.062360
0.047720
0.015840
0.036630
0.008960

33

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
-0.073610
0.022110
-0.060490
0.024620
-0.006280
-0.034530
0.116820
0.074950
0.033090
-0.019610
0.000710
0.022010
0.034700
0.015590
-0.015510
-0.270850
-0.052300
0.027940
0.078110
0.062010
0.034370
0.015250
-0.017020
0.048480
0.000550
-0.023710
0.018700
-0.011780
-0.036700
0.019540
0.063130
0.002790

34

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
0.017030
0.030680
0.027370
-0.008330
0.031610
0.019290
0.004470
-0.050950
-0.008220
-0.012170
-0.045810
0.015750
0.022040
-0.026720
0.046650
0.005380
-0.027290
-0.109790
-0.080490
-0.056330
0.036650
-0.003870
0.085250
0.133650
0.077820
0.031020
0.030340
-0.034500
0.034920
0.028570
0.008670
0.023860

35

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
-0.025390
0.036450
0.149480
0.052010
-0.014120
-0.032890
0.005500
-0.039700
0.027280
-0.024440
0.011930
0.016320
0.067730
0.035650
0.066740
-0.007910
0.030880
-0.012760
0.037950
0.011970
0.014100
0.040400
0.025790
0.040090
-0.024370
0.016120
0.048920
-0.009490
-0.046020
-0.010820
-0.000270
-0.026570

36

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
0.015470
0.036790
0.004500
-0.002400
-0.040570
-0.012860
0.027710
0.027990
0.018740
0.025980
0.020500
0.048690
0.055180
0.030380
0.025990
-0.040580
0.017200
0.009780
0.033290
0.031540
0.024120
0.057330
0.061050
-0.030600
-0.078620
0.044770
0.028970
-0.019970
0.024770
-0.001420
0.061720
-0.010430

37

Exhibit 6

EW NYSE,
AMEX, and
NASDAQ
-0.047880
-0.021390
0.085170
0.044240
0.048620
0.027020

38

Q1. What difficulties will you face in estimating cost of equity for an unlisted firm vis-a-vis listed firms?

Q2. Ameritrade doesnt have beta estimate given very short period of trading. Exhibit 4 provides various choices of comparable firm
What comparable firms do you recommend as the appropriate benchmakrs for evaluatng the risk of ameritrade's plann

Q3. Using the stock price and returns data in exhibits 4 and d5, and the capital structure information in exhibt , calculate the asset b
Q4. How should Joe Ricketts, the CEO of Ameritrade, view the cost of captail estimat eyou have calculated.
Also, complete Lockheed and subsidy questions from today's class.

The cost of capital for a firm is the cost that it pays for the capital,which it uses to operate.to do any operation a firm nee
the firm is required to pay interest on the borrowed capital.this interest is the cost of debt(borrowing) that has to be paid

wieghted ave cost of capital (Ka) = WAC of debt+WAC of equity


WACC = d/e+d * Kd + e/e+d * Ke where kd is cost of debt,ke cost of equity d is debt i.e market value of the debt in capi

CAPM=capital asset pricing model is used to determine the cost of equity.


capm model assumes that investors should be compensated for time valu

therefore Ke = Rf+(Rm-Rf)
ke is also the expected return of equity.
where Rf is risk free returns and Rm-Rf is risk premium i.e market returm
For ameritrade the transaction income is about 66%of total income so the comparable firms are:charles schwab and qu
Returns as compared to previous period is
R = Pf-Pi+D/Pi

if there is x-for-y split then return is = (x/y*Pf-Pi+x/y*D)/Pi

beta equity = avg of beta of charles schwub and quick reilly = 2+2.31/2
assuming beta debt for american markets to be = 0.20
Rf=6.61% riskfree returns (on 30 yrs us govt securities)
Rm=14%(large company stocks)
e/v=e/e+d = 66989094/(66989094+690367649)=
d/v =
0.912
Weighted avg Ke =
weighted avg Kd=

.066+2.16*.074
0.066+0.20*.074

therefore WACC = 29.45

=
=

0.089

0.225
0.081

bit 4 provides various choices of comparable firms.


akrs for evaluatng the risk of ameritrade's planned advertising and technology investments?

ucture information in exhibt , calculate the asset betas for comparable firms.

mat eyou have calculated.

it uses to operate.to do any operation a firm needs capital(money).A firm can borrow money from various entities e.g banks
s the cost of debt(borrowing) that has to be paid by the firm.a firm can also sell a part of its ownership(shares) and thus raise money.the share holders

uity d is debt i.e market value of the debt in capital structure,e is market value of equity.

ng model is used to determine the cost of equity.


at investors should be compensated for time value of money and the risk associated with the security/share.

ke is also the expected return of equity.


ns and Rm-Rf is risk premium i.e market returm Rm compared with riskfree return Rf.beta is the risk measure of the security or share.
he comparable firms are:charles schwab and quick reilly

2.16

22.50%
8.10%

ous entities e.g banks


shares) and thus raise money.the share holders expect some return on the money which they gave.this expected return on the money that the shareho

easure of the security or share.

s expected return on the money that the shareholders gave to the firm is the firms cost of equity capital.thus the total cost of capital for a firm is the cost

.thus the total cost of capital for a firm is the cost of debt+cost of equity.the cost of capital for afirm is calculated on weighted average basis i.e in the av

alculated on weighted average basis i.e in the average cost of capital what is the weight of debt and equity.

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