What factors should Ameritrade management consider when evaluating the proposed advertising program and technology upgrades? Why?



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Ameritrade answers

1.- What factors should Ameritrade management consider when evaluating the

proposed advertising program and technology upgrades? Why?

Ameritrade should consider:

Net Present Value (NPV) of the investment in technology and advertising as well as the Internal Rate of Return (IRR) and Opportunity Cost of Capital. These measurements will take into consideration assumptions about project risk s and market return which will help to determine if the investment in technology and advertising will reap as great return as if the stockholders were paid out the value of the anticipated investment and invested it on their own elsewhere.
2.- How can the Capital Asset Pricing Model be used to estimate the cost of capital for a

real (not financial) investment decision, i.e., what is the estimate of the risk-free rate


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