Professional Documents
Culture Documents
Exhibit 1 Consolidated Annual Income Statements for the Fiscal Year Ending in September
1997 1996 1995
Net Revenues
Transaction Income $ 51,936,902.00 $ 36,469,561.00 $ 23,977,481.00
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
Exhibit 2 Consolidated Annual Balance Sheets for the Fiscal Year Ending in September
1997 1996
ASSETS
Cash & Gash Equivalents $ 53,522,447.00 $ 15,767,170.00
Cash & Investments Segregated in Compliance with Federal Regulatio 319,763,921 175,668,497
Receivable from Brokers, Dealers, & Clearing Organizations 17,823,640 15,096,862
Receivable from Customers & Correspondents 325,407,147 166,075,055
Furniture, Equipment, & 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
Stockholder’s 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
Historic Average Total Annual Returns on US Government Securities and Common Stocks (1950 -1996)
Average Annual Return Standard Deviation
T-Bills 5.2% 3.0%
Intermediate Bonds a 6.4% 6.6%
Long Term Bonds b 6.0% 10.8%
Large Company Stocks c 14.0% 16.8%
Small Company Stocks d 17.8% 25.6%
Historic Average Total Annual Returns on US Government Securities and Common Stocks (1929 - 1996)
Average Annual Return Standard Deviation
T-Bills 3.8% 3.3%
Intermediate Bonds a 5.4% 5.8%
Long Term Bonds b 5.5% 9.2%
Large Company Stocks c 12.7% 20.3%
Small Company Stocks d 17.7% 34.1%
Source: Yields are from Datastream, historical data are from lbbotson Associates, SBBI 2000 Yearbook.
a Portfolio of US Government bonds with maturity near 5 years.
b Portfolio of US Government bonds with maturity near 20 years.
c Standard and Poor’s 500 Stock Price Index.
d A subset of small cap stocks traded on the NYSE (1926-1981); Dimensional Fund Advisor’s Small Company Fund (1982-1997).
201-046 -7-
Ameritrade
Date Shares Price Dividend Stock Split
Charles Schwab
Date Shares Price Dividend Stock Split
30-Sep-87 29,121 15.875
30-Oct-87 29,121 7.875 -0.504
30-Nov-87 29,121 6.625 -0.159
31-Dec-87 25,388 6.000 -0.094
29-Jan-88 25,388 6.500 0.083
29-Feb-88 25,388 9.000 0.385
31 -Mar-88 25,388 7.375 -0.181
29-Apr-88 25,388 7.625 0.034
31-May-88 25,388 6.875 -0.098
30-Jun-88 25,294 7.250 0.055
29-Jul-88 25,294 7.500 0.034
31-Aug-88 25,294 6.750 -0.100
30-Sep-88 25,328 6.750 0.000
31-Oct-88 25,328 7.500 0.111
30-Nov-88 25,328 6.750 -0.100
30-Dec-88 25,354 6.750 0.000
29-Jan-89 25,354 10.250 0.519
29-Feb-89 25,354 8.625 -0.159
32 -Mar-88 25,354 8.875 0.029
29-Apr-89 25,354 10.125 0.1408
31-May-89 25,354 11.750 0.030 0.1635
30-Jun-89 25,352 11.000 -0.0638
29-Jul-89 25,352 16.500 0.030 0.5027
31-Aug-89 25,352 15.750 -0.0455
30-Sep-89 25,386 14.000 -0.1111
31-Oct-89 25,386 13.000 0.030 -0.0693
30-Nov-89 25,386 12.500 -0.0385
30-Dec-89 25,332 13.875 0.1100
29-Jan-90 25,332 13.500 0.030 -0.0249
29-Feb-90 25,332 15.250 0.1296
33 -Mar-88 25,332 17.000 0.1148
29-Apr-90 25,332 15.125 0.030 -0.1085
31-May-90 25,332 15.750 0.0413
30-Jun-90 25,099 15.250 -0.0317
29-Jul-90 25,099 13.625 0.030 -0.1046
31-Aug-90 25,099 12.625 -0.0734
30-Sep-90 25,255 11.375 -0.0990
31-Oct-90 25,255 12.625 0.040 0.1134
30-Nov-90 25,255 11.875 -0.0594
30-Dec-90 24,464 11.375 -0.0421
29-Jan-91 24,464 16.000 0.040 0.4101
29-Feb-91 24,464 18.250 0.1406
34 -Mar-88 24,464 20.250 0.1096
29-Apr-91 24,464 18.125 0.040 -0.103
31-May-91 24,464 22.500 0.241
30-Jun-91 24,435 24.750 0.100
29-Jul-91 24,435 27.500 0.050 0.113
31-Aug-91 24,435 28.375 0.032
30-Sep-91 25,596 31.125 0.097
31-Oct-91 25,596 37.750 0.060 0.215
30-Nov-91 25,596 32.750 -0.132 Split adjustment
30-Dec-91 38,394 30.375 3 for 2 0.391 3 2
29-Jan-92 38,394 31.875 0.040 0.051
29-Feb-92 38,394 33.250 0.043
35 -Mar-88 38,479 34.625 0.041
29-Apr-92 38,479 28.500 0.060 -0.175
31-May-92 38,479 28.875 0.013
30-Jun-92 38,626 23.500 -0.186
29-Jul-92 38,626 24.625 0.060 0.050
31-Aug-92 38,626 22.500 -0.086
30-Sep-92 38,149 18.000 -0.200
31-Oct-92 38,149 20.250 0.060 0.128
30-Nov-92 38,149 24.875 0.228
30-Dec-92 37,741 26.125 0.050
29-Jan-93 37,741 30.250 0.060 0.160
29-Feb-93 37,741 32.375 0.070
36 -Mar-88 37,741 36.500 0.127
29-Apr-93 37,741 32.750 0.075 -0.101
31-May-93 37,741 35.250 0.076
30-Jun-93 56,612 28.500 3 for 2 0.213 3 2
29-Jul-93 56,612 29.000 0.050 0.019
31-Aug-93 56,612 32.875 0.134
30-Sep-93 57,625 34.500 0.049
31-Oct-93 57,625 34.625 0.050 0.005
30-Nov-93 57,815 31.875 -0.079
30-Dec-93 57,815 32.375 0.016
29-Jan-94 57,815 29.500 0.070 -0.087
29-Feb-94 57,815 27.500 -0.068
37 -Mar-88 57,815 26.875 -0.023
29-Apr-94 57,815 28.375 0.070 0.058
31-May-94 57,815 30.250 0.066
30-Jun-94 57,114 24.750 -0.182
29-Jul-94 57,114 26.750 0.070 0.084
31-Aug-94 57,114 30.750 0.150
30-Sep-94 56,829 29.625 -0.037
31-Oct-94 56,829 35.375 0.070 0.196
30-Nov-94 57,325 31.875 -0.099
30-Dec-94 57,325 34.875 0.094
29-Jan-95 57,325 40.000 0.090 0.150
29-Feb-95 57,325 44.375 0.109
38 -Mar-88 85,988 32.250 3 for 2 0.090 3 2
29-Apr-95 85,988 34.250 0.060 0.064
31-May-95 85,988 35.000 0.022
30-Jun-95 85,896 43.875 0.254
29-Jul-95 85,896 46.125 0.080 0.053
31-Aug-95 87,061 46.625 0.011
30-Sep-95 174,122 29.000 2 for 1 0.244 2 1
31-Oct-95 174,122 22.875 0.040 -0.210
30-Nov-95 174,678 24.250 0.060
30-Dec-95 174,678 20.125 -0.170
29-Jan-96 174,678 25.125 0.040 0.250
29-Feb-96 174,678 25.500 0.015
39 -Mar-88 174,678 25.875 0.015
29-Apr-96 174,032 24.500 0.040 -0.052
31-May-96 174,032 24.250 -0.010
30-Jun-96 174,989 24.500 0.010
29-Jul-96 174,989 24.125 0.050 -0.013
31-Aug-96 174,989 25.000 0.036
30-Sep-96 175,166 23.000 -0.080
31-Oct-96 175,166 25.000 0.050 0.089
30-Nov-96 175,166 30.250 0.210
30-Dec-96 175,173 32.000 0.058
29-Jan-97 175,173 37.500 0.172
29-Feb-97 175,173 37.500 0.050 0.001
40 -Mar-88 175,173 32.000 -0.147
29-Apr-97 175,068 36.625 0.145
31-May-97 175,068 40.625 0.050 0.111
30-Jun-97 175,813 40.500 -0.003
29-Jul-97 176,422 47.000 0.160
31-Aug-97 176,422 42.750 0.050 -0.089
Jan 92-Dec 96
0.036 0.03345
0.148 0.11513
E*Trade
Date Shares Price Dividend Stock Split
30-Aug-96 29,393 10.500
30-Sep-96 29,539 13.188 0.256
31-Oct-96 29,539 11.125 -0.156
29-Nov-96 29,539 10.938 -0.017
31-Dec-96 29,545 11.500 0.051
31-Jan-97 29,545 17.625 0.533
28-Feb-97 29,545 24.000 0.362
31-Mar-97 30,440 18.000 -0.250
30-Apr-97 30,440 15.000 -0.167
30-May-97 30,440 17.625 0.175
30-Jun-97 30,958 19.625 0.113
31-Jul-97 30,958 30.500 0.554
29-Aug-97 30,958 32.125 0.053
This table shows betas for different indices and different lenghts
Betas
Levered Charles Schwab Quick & Reilly Waterhouse Investor Services
full period
VW 2.34 2.18 1.40
EW 1.74 1.90 1.35
5yr 92-96
VW 2.30 2.20 3.18
EW 1.36 1.43 2.17
We must remember that betas obtained from stocks correspond to EQUITY betas and thus include financial risk from leverage
Leverage
d/v 0.080 0.000 0.380
d/e 0.087 0.000 0.613
Unlevered
Betas Charles Schwab Quick & Reilly Waterhouse Investor Services
full period
Assuming VW 2.21 2.18 1.00
35% tax rate EW 1.65 1.90 0.96
5yr 92-96
VW 2.17 2.20 2.27
EW 1.29 1.43 1.55
Using the CAPM model to get the cost of capital for the project
Reasonable approach is to use the current yield on long term government bonds
If we assume that the project will last for 10 years, we use 10 yr yield
Historical average annual return of large stocks minus that of long term US government bonds over the longer period (29-96
estimate = 12.7-5.5
From exhibit 3
0.072
Using this definition of Market premium
Follow authors' idea that the market premium in the present day is between 4 and 6 percent
Use 5%
0.050
Using this definition of Market premium
Conclusion
The cost of capital for the project is high.
The estimated cost of capital represents the risk of real investments in the discount brokerage industry
The discount brokerage business has very high systematic risk. All of the revenues are linked to stock market activity and pe
If Ameritrade uses debt to finance the project, the cost of capital may fall but the equity beta (and the cost of equity) will incr
EWI
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
-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
-0.271
-0.052
0.028
0.078
0.062
0.034
0.015
-0.017
0.048
0.001
-0.024
0.019
-0.012
-0.037
0.020
0.063
0.003
0.017
0.031
0.027
-0.008
0.032
0.019
0.004
-0.051
-0.008
-0.012
-0.046
0.016
0.022
-0.027
0.047
0.005
-0.027
-0.110
-0.080
-0.056
0.037
-0.004
0.085
0.134
0.078
0.031
0.030
-0.035
0.035
0.029
0.009
0.024
-0.025
0.036
0.149
0.052
-0.014
-0.033
0.006
-0.040
0.027
-0.024
0.012
0.016
0.068
0.036
0.067
-0.008
0.031
-0.013
0.038
0.012
0.014
0.040
0.026
0.040
-0.024
0.016
0.049
-0.009
-0.046
-0.011
0.000
-0.027
0.015
0.037
0.005
-0.002
-0.041
-0.013
0.028
0.028
0.019
0.026
0.021
0.049
0.055
0.030
0.026
-0.041
0.017
0.010
0.033
0.032
0.024
0.057
0.061
-0.031
-0.079
0.045
0.029
-0.020
0.025
-0.001
0.062
-0.010
-0.048
-0.021
0.085
0.044
0.049
0.027
from Exhibit 4
Avg
1.80
1.50
1.17
1.20
0.0634
From exhibit 3
erage industry
inked to stock market activity and performance
beta (and the cost of equity) will increase with the level of leverage used.