Please help me to solve this problem, This should include a statement of the problem along with any issues you believe are relevant for your analysis. Use Exhibits, Tables or Figures to illustrate any calculations. Label and format them correctly. Thnak you so mcuh.

Calculate Ameritrades cost of equity using the SML (CAPM). In doing so, it is necessary for you to identify the appropriate risk-free interest rate, the appropriate beta, and the appropriate value for the market risk premium. Use the information provided in the case, discuss the alternatives for each and make your decisions. Use your textbook as a reference and use what you have learned in class. Justify your choices. Show your calculations (in Tables or Exhibits).

a. Ameritrade had a recent IPO (just before the case was written) and does not have sufficient stock returns to estimate their beta.

i. Use the Pure Play method to estimate Ameritrades beta. Market value capital structure ratios (Debt/Value) are given in the case for competitors. Note that this is the Debt Ratio, not the Debt/Equity ratio.

ii. Comparable firm betas (in 1997): Charles Schwab = 2.11, Quick & Reilly = 2.2, Waterhouse = 1.98

iii. Comparable firm tax rates (in 1997): 35% for all three comparable firms iv. Ameritrade currently does not have any LT Debt. However, they expect to raise funds using LT Debt for their planned technology investment. Use this value for the market value of debt for both this calculation and WACC.

b. A Pure Play example is posted on BbLearn with the case questions.

c. Explain why these three firms are the best choices as comparable firms for estimating Ameritrades beta