Petrochemicals Midland Beta Wacc

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    Midland Case

    Midland Energy Resources, Inc.: Cost of Capital This case describe an global energy company, whose name is Midland, with three operations in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. We are going to calculate the cost of the capital of this company, and answer the following three questions. What are the cost of capital for Midland debt and equity? What is the WACC for Midland? What should be the cost of capital for Midland operational

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    Wacc

    is influenced by the business risk of the firm, the financial risk of the firm, the marketability risk of the security, and the time to maturity of the security. The risk-premium-over-debt approach relies on historical returns, amount of debt, and beta (systematic risk). Cost of Equity Required return of a security consists of a risk-free rate of return plus a premium for the risk of that security (CAPM) The risk-free rate varies over time and is influenced by the expected rate of inflation

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    Midland Case

    as the risk free rate in the 2007 WACC calculations. The reason is that majority of large firms and financial analysts report using long-term yields for bonds to determine the risk-free rate. Rf=0.0498 2. Cost of debt, which is determined by adding the spread to Treasury (1.62%) to the rate of 30-year treasury bonds in 2007. Rd=0.0498+0.0162=0.066 3. Cost of equity, the EMRP (5%) and D/E (59.3%) was taken out of the context of the case. βa=Equity Beta/(1+D/E)= 1.25/(1+0.593)= 0.78 According

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    Midland

    and the company cost of capital. Design/methodology/approach – The capital asset pricing model is used to estimate the company’s cost of equity capital, and the cost of debt is estimated using bond yield spreads. The weighted average cost of capital (WACC) is calculated as the weighted percentage of the firm funded by equity, preferred stock, and debt multiplied by the individual costs of capital. Univariate and multivariate analyses are conducted around the event of adoption to determine if the cost

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    Wacc Example

    Executive Summary: Midland Energy Resources, Inc. is a global energy company with a broad array of products and services. The company operates within three different operations including oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Midland has proven to be a very profitable company, with reported operating revenue of $248.5 billion and operating income of $42.2 billion. The company has been in business for over 120 years and employed more than 80

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    Midland

    performance. - To consider proposal for mergers and acquisitions. - To arrive at decision regarding stock repurchasing. At division or business unit level is well as corporate level; cost of capital is an essential component in WACC. 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland’s choice of EMRP appropriate? If not, what recommendations would you make and why? A- - rd = 30 years to US debt treasury

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    Midland Energy Resources

    Executive Summary Midland Energy Resources is a leading global energy developer dedicated to providing advanced power systems and energy services around the world. Midland Energy Resources has three divisions Exploration & Production, Refining & Marketing, and Petrochemicals. They have been incorporated more than 120 years previously and they have 80,000 employees in 2007. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources must determine the weighted average

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    Midland

    Midland Energy Resources, Inc.: Cost of Capital Case Solution Total Words: 1930 Excel Calculations: Return on Debt, T-Bills Return, Yield Spread, Beta, Return on Equity, WACC for Midland, Exploration and Production, Refining and Marketing and Petrochemicals. Abstract: Midland Energy Resources has its operations divided amongst three separate divisions. The divisions have different functions and need separate discount rate to evaluate its projects. The cost of capital is very

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    Midland Energy Resources

    Division Date: October 7, 2013 Re: Midland Energy Resources Inc. Weighted Average Cost of Capital Midland Energy Resources Inc. is a publicly traded company that primarily deals in the energy industry. The company itself is divided into three major operational divisions, two of which that is concerning to the company include: Oil and Gas Exploration and Production (E&P) and Refining and Marketing (R&M). The Petrochemicals division will not be addressed. Going forward, Midland Energy would like to undertake

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    Case Analysis Midland Energy

    Cost of Capital Estimate for Midland Energy Resources, Inc. In the first section of my report, I list out the main models and methods applied to estimate the cost of capital for Midland’s three divisions, general assumptions made and the corresponding justifications. In the second section, Calculations, I not only compute the cost of capital based on the general assumptions previously made, but also discuss specifics of each division and the additional adjustments or assumptions made to justify

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    Midland

    Question 1: A, The risk free rate used to calculate the cost of equity of Midland company is the 30-year yield to maturity for US Treasury Bonds: Rf = 4.98%. The company has long term projects for the future; it’s relevant to use a long-term risk free rate. The equity market risk premium is 5% that the company already used in 2006 and obtained after research and consultation with professionals. On Exhibit 6, the respondents’ risk premium of three surveys showed that the range is about 2% to

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    Midland Energy

    MIDLAND ENERGY Overview: Midland and Midland’s Divisions: E&P, R&M, and Petrochemicals. Midland Energy Resources Inc. is the global energy company with a broad array of products and services. The company has been in business for over 120 years. The company operates within three different operations: 1. Exploration and Production (E&P) is the most profitable segment. With oil prices at historic highs in 2007, Midland anticipated heavily investment in acquisitions of promising properties

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    Wacc

    should always use the market value weights to calculate WACC. In practice, firms do use the book value weights. Generally, there will be difference between the book value and market value weights, and therefore, WACC will be different. WACC, calculate using the book value weights, will be understand if the market value of the share is higher than the book value and vice versa. Why do managers prefer the book value weights for calculating WACC? Beside the simplicity of the use, managers claim

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    Midland Energy Resources Inc.: Cost of Capital

    Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost of capital for the corporation as a whole

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    Midland Assignment

    president of Midland Energy Resources, Inc., to advise her on cost of capital matters. Read the “Midland Energy Resources, Inc.: Cost of Capital” case (HBP #4129) handed out in class. This case illustrates how the Capital Asset Pricing Model (CAPM) may be used to estimate the Weighted Average Cost of Capital (WACC) in a corporate setting. Then, working with your team, answer each of the following questions using data provided in the case: i. Why is Midland concerned about its WACC? How will it use

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    Midland Energy Resources Case Study

    BRIEF INFORMATION ABOUT MIDLAND ENERGY RESOURCES Midland Energy Resources was a global energy company with operations in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. It had been incorporated more than 120 years and had more than 80,000 employees in 2007. Its consolidated operating revenue, operating income and total assets were $248.5 billion, $42.2 billion and $262.4 billion respectively in 2006. Midland’s E&P division operated in all parts of

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    Midland Energy Resource Case Analysis

    Midland Energy Resource Case Analysis I. Midland’s capital planning model and Janet Mortensen's role. The capital-planning model adopted by Midland is MACC, standing for weighted average cost of capital. The primary role of Janet Mortensen is frequently calculating corporate and divisional costs of capital at division level as well as corporate level. In addition, she also needs to check the appropriateness of her calculation and append “user`s guide” to it. Evaluating M&A proposals, stock

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    Midland

    1. To make an estimate of the cost of capital of Midland Energy Resources, Inc. It will use this information for asset appraisals for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. 2. 4.98% (30 year) would be the best risk-free rate for Midland since refining and marketing is the largest division in the company and refining and marketing division’s projects are mostly long-term projects. 3. Consolidated: 4.98

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    Midland Energy Case Analysis

    Midland Energy Resource Case Analysis 1. Describe Midland, its capital planning model and Janet Mortensen's role in the case. Midland Energy Resource, Inc. has three major divisions: Exploration & Production (E&P), Refining and Market (R&M), and Petrochemicals. E&P division provides the most profit for Midland. R&M is the largest division in Midland by revenue. Petrochemicals is the smallest division in Midland. Midland’s financial strategy in 2007 consisted of four principals:

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    Midland Case

    Midland Energy Resources, Inc.: Cost of Capital May 28, 2014 1. For what purposes dose Mortensen estimated Midland’s cost of capital? What would be the potential consequences of a too high estimate compared to the firm’s “true” cost of capital? What about a too low estimate? Estimates of Midland’s cost of capital are used in many analyses, including asset appraisals for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock

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    Midland Energy

    value of debt and credit rating for the company’s debt, which includes adjustments for the company debt’s default risk. The discount rate for equity can be calculated from estimated values for the equity market risk premium (EMRP) and risk level (beta) for the company’s stock. The cost of capital (rwacc) for the division can be calculated similarly using the debt level used by the division, the overall company’s tax rate, and an estimated market value of the equity (E) for the division

    Words: 1647 - Pages: 7

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    Midland Energy Resoucre

    the cost of equity by using the CAPM model: [pic] In order to solve this equation, we need to fine beta and EMRP. Midland’s beta was available on the case, which is 1.25. And Midland chose to use an equity market risk premium(EMRP) of 5.0% after a review of recent research and in consultation with its professional advisors. So, [pic] Using the following formula, we can calculate average asset beta for each comparable companies and the required two divisions: [pic] [pic] is close to zero so the

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    Midland Energy Resource

    Midland Energy Resource Report for Cost of Capital October 16, 2014 Abstraction General Analysis of Midland Energy Resources Cost of Debt • • • • Consolidated Company Exploration & Production Refining and Marketing Petrochemicals Cost of Equity Equity market risk premium of 5% is reasonable. According to the Exhibit 6, the U.S. stock return minus Treasury bond yields for each period varies. Since each period has different standard error, it will be better to take the weighted average of the

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    Midland Case Analysis

    Midland Energy/Sample 2 Midland Energy Resources, Inc. Midland Energy Resources, Inc. is a global energy company that operates in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Midland’s most profitable segment is its E&P division which produces 67% of the company’s net income (Exhibit 3). Its largest division is R&M with the Petrochemical division being the smallest. The primary goals of Midland’s financial strategy are to fund substantial overseas

    Words: 2133 - Pages: 9

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    Midland Corporation

    Case Analysis: Midland Energy Resources, INC.: Cost of Capital Midland’s consolidated balance sheet and its access to global financial and commodity markets Midland Energy Resources, Inc. was a global integrated oil and gas company. It had sometimes presented attractive opportunities to trade securities and commodities. Midland was been incorporated more than 120 years with more than 80000 employees in 2007. Midland conservative compared to some of its large competitors, but it did have a group

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    Midland Case Study

    Midland Energy Resources, Inc. Midland Energy Resources, Inc. Is a global energy company with three major divisions, including oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Midland has been a profitable company over the past few years. In 2006, the firm, on a consolidated basis, had operating revenue and operating income of $248.5 billion and $42.2 billion respectively. Among these three divisions, E&P was Midland’s most profitable business, R&M was

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    Midland Energy Recourses

    Midland Energy Resources, Inc.: Cost of Capital Executive Summary Midland Energy Resources, Inc. is a global energy company comprised of three different operations – oil and gas exploration (E&P), refining and marketing (R&M), and petrochemicals. E&P is Midland’s most profitable business, and midland anticipated continued heavy investment in acquisitions of promising properties, in development of its proved undeveloped reserves, and in expanding production. Midland wanted to boost

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    Midland Case

    Chengze Chen Kevin M. Sweeney 04/17/2015 Midland Energy Resources Case Analysis Midland is an international energy company whose businesses include oil and gas exploration, refining and marketing and petrochemicals. In 2006, its revenue has reached $248.5 billion while its income is $42.2 billion. Midland’s capital planning model basically depends on the macro financial market and strategy of the overall company in 2007, which includes stimulating the overseas growth, investing in valuable

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    Midland Energy Case Analysis

    Midland Energy Resources Case Analysis Midland Energy Capital Planning Model • Fund significant overseas growth • As domestic natural resources dwindle, overseas investments are the main drivers of growth for Midland. These investments are analyzed and evaluated is US dollars (foreign cash flows are converted to US dollars) and have a US dollar discount rate applied to them. In 2006, 77.7% of Midland’s total earnings from equity affiliates came from non-US investments. • Invest in value

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    Midland Energy

    [pic] Midland Energy Resources, Inc. Cost of Capital Table of Contents I. Executive Summary II. Introduction III. Cost of Capital IV. Risk & Tax Rate V. Capital Structures VI. WACC VII. Conclusion VIII. References I. Executive Summary Midland Energy Resources is a global energy company with operations in oil and gas exploration and production(E&P) providing a broad array of products and services to upstream oil and gas customers worldwide

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    Gmba8 G5 Midland Case Study

    To find the corporate cost of capital for Midland Energy Resources we will need to find the cost of capital of the three divisions within the company. The formula for WACC is: WACC=rd * (D/V) * (1-t) + re * (E/V) where, rd= Cost of debt re= Cost of equity D= Market value of debt E= Market value of equity V= D+E= Value of the company (or division) T= Tax rate To calculate the cost of debt (rd) for each division we will use the data in the case by adding the premium over the US treasury securities

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    Beta

    vs Vanguard Index was almost a horizontal one and the Beta was 0.147. However from Figure _, the Beta was 1.16 for Brown Group to Vanguard Index which was a much steeper slope as compared to California REIT’s. As Beta measures the volatility relative to the market, which is represented by Vanguard Index 500 Trust, California REIT is much less volatile than the market. However for Brown Group, it is much more volatile than the market as its Beta is more than 1. These results show a different

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    Midland Case

    Midland Energy Resources, Inc.: Cost of Capital This case describe an global energy company, whose name is Midland, with three operations in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. We are going to calculate the cost of the capital of this company, and answer the following three questions.   What are the cost of capital for Midland debt and equity?   What is the WACC for Midland?   What should be the cost of capital for Midland

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    Caso Midland

    Caso # 3 Midland Energy Resources, Inc: Costo de Capital 1. ¿Cuáles son los componentes de la estrategia financiera de Midland Energy Resources? ¿Son compatibles con su objetivo de crecimiento? La estrategia Financiera de Midland tiene 4 pilares específicos: financiar un crecimiento importante en el extranjero, invertir en proyectos de creación de valor en todas las divisiones, optimizar su estructura de capital y recomprar oportunamente las acciones devaluadas. En otras palabras la principal

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    Wacc

    asked to analyze the capital structure of JASA Holdings, and make recommendations on a future course of action. JASA Holdings has 40 million shares outstanding, selling at RM20 per share and a debt-equity ratio (in market value terms) of 0.25. The beta of the stock is 1.15, and the firm currently has an AA rating, with a corresponding yield to maturity of 10%. The firm's income statement is as follows: EBIT | RM150 million | Interest Expense | RM 20 million | Taxable Income | RM130 million

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    Midland Energy

    Midland Energy Midland Energy Resources Inc.: Cost Of Capital Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. She was preparing her annual cost of capital for midland as well as for each of its following three divisions: * Exploration & production (E&P) * Refining & Marketing (R&M) * Petrochemicals Midland was a global company with operations in oil and gas. Midland corporate treasury had began analysis and preparation of annual cost

    Words: 305 - Pages: 2

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    Midland Case

    Midland Energy/Sample 2 Midland Energy Resources, Inc. Midland Energy Resources, Inc. is a global energy company that operates in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Midland’s most profitable segment is its E&P division which produces 67% of the company’s net income (Exhibit 3). Its largest division is R&M with the Petrochemical division being the smallest. The primary goals of Midland’s financial strategy are to fund substantial

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    Midland

    value of debt and credit rating for the company’s debt, which includes adjustments for the company debt’s default risk. The discount rate for equity can be calculated from estimated values for the equity market risk premium (EMRP) and risk level (beta) for the company’s stock. The cost of capital (rwacc) for the division can be calculated similarly using the debt level used by the division, the overall company’s tax rate, and an estimated market value of the equity (E) for the division. The

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    Midland Review

    Midland Energy Resources, Inc.: Cost of Capital Case Objectives This case gives you a chance to apply our ideas about cost of capital (WACC) to a real firm with separate divisions. Assignment You are a team of Finance Professionals with experience in analyzing the cost of capital for divisions of companies and companies overall. Janet Mortensen has been struggling with her calculations, wondering if her application is correct given the amount of grumbling she has heard. She has asked

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    Midland Energy Resources: Cost of Capital

    Midland Energy Resources, Inc.: Cost of Capital Analysis TABLE OF CONTENTS I. EXECUTIVE SUMMARY ........................................................................................ 2 II. COMPONENT ESTIMATIONS ............................................................................... 2 1. Effective Tax Rate - t ............................................................................................. 2 2. Capital Structure – D/E ..............................................

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    Midland

    Management Prof. Joseph Vu Case Study Questions: Midland Energy Resources, Inc: Cost of Capital Janet Mortensen, senior vice president of project finance at Midland Energy Resources, is in the process of preparing her annual cost of capital estimates for Midland and each of its three divisions (oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals). These estimates are used in many analyses within Midland, including capital budgeting decisions, financial

    Words: 532 - Pages: 3

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    Midland Energy Resources

    Executive Summary: Midland Energy Resources, Inc. is a global energy company with a broad array of products and services. The company operates within three different operations including oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Midland has proven to be a very profitable company, with reported operating revenue of $248.5 billion and operating income of $42.2 billion. The company has been in business for over 120 years and employed more than

    Words: 1751 - Pages: 8

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    Understanding Concepts Return Stock, Risks, Portfolio, Beta, Wacc

    different firm create a risk to that portfolio just like and individual and unique portfolio be.just because the complete amount is not in one only is combine like in this case company A & B. Question 4 State what beta measures and issues. The beta is the way the stock sensitivity function depending on the respective stocks industry if the market change the return will change and is based on 1% of respectively industry and this can be calculated up to a point in a systematic

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    Midland

    财务管理案例一翻译稿 Midland Energy Resources, Inc.: Cost of Capital 2007年1月下旬,负责Midland能源项目融资的高级副总裁,Mortensen,正在编制Midland及其三个主要业务部门的年度资金成本估算报告。Midland是一个全球性的能源公司,其主要业务为石油和天然气勘探生产(E&P),炼油与销售(R&M),以及石化业务。综合起来看,该公司2006年营业额和营业收益分别为248.5亿美元和42.2亿美元。 在Midland内部,很多的分析需要用到资金成本估评,包括:资本预算和财务核算,绩效评估,M&A 提案,以及股票回购的决定。这些分析有些是在部门或业务单位层面来完成的,有些是在公司层面来完成的。早在20世纪80年代初,Midland的企业财务人员就已经开始为公司以及各部门编制年度资金成本估算。然而,由财务人员编制的估算却常受到批评,公司的各部门领导有时会对特定的假设以及使用的数据提出质疑。 2002年,Mortensen,一位直接受命于CFO的资深分析师,被指派去完成Midland公司股票回购资金成

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    Midland Energy Resource

    has performed thorough analysis surrounding the questions of cost of capital for Midland Energy Resources, Inc. (Midland). Here are the results of our research: 1. Ms. Mortensen estimates Midland’s cost of capital for a variety of reasons including use for capital budgeting, financial accounting, performance assessments, stock repurchase estimations, and potential “M&A” opportunities. In addition, Midland relies on the cost of capital to deliver on the financial and investment policies

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    Wacc

    return for bearing extra risk. This extra risk is often called the "equity risk premium", and is equivalent to the risk premium of the market as a whole times a multiplier--called "beta"--that measures how risky a specific security is relative to the total market. Thus, the cost of equity capital = Risk-Free Rate + (Beta times Market Risk Premium). 2. Capital structure. Next, we calculate the proportion that debt and equity capital contribute to the entire enterprise, using the market values of total

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    Midland

    Executive Summary Midland Energy Resources is a leading global energy developer dedicated to providing advanced power systems and energy services around the world. Midland Energy Resources has three divisions Exploration & Production, Refining & Marketing, and Petrochemicals. They have been incorporated more than 120 years previously and they have 80,000 employees in 2007. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources must determine the weighted

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    Midland Resources

    How, if at all, should these anticipated uses affect the calculations? The cost of capital is the minimum acceptable rate of return for new investments in the corporation. Estimates of Midland’s cost of capital are used in many analysis within Midland, including asset appraisal for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. These estimates are used at the divison or the business unit level and also on the corporate level

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    Wacc

    Corporation (RC) is estimating its weighted average cost of capital. (WACC). Its target capital structure is 20% debt, 20% preferred stock and 60% common equity. Its outstanding bonds have a 12% coupon rate, paid semiannually, a current maturity of 20 years, and sell in the marketplace for $1,000. RC could sell at par, $100 preferred stock that would pay a 12% annual dividend, and flotation costs of 5% would be incurred. RC’s beta is 1.2, the risk-free rate is 10% and the market risk premium is 5%

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    Midland

    divisions are not publicly traded entities, and therefore do not have individual Beta figures. In order to properly assess the cost of capital for Midland’s divisions, Mortensen collected beta estimates from several businesses with operations similar to those of Midland’s divisions and used the average of these estimates to derive a beta estimate for divisional beta estimates (pg.6). 2. Calculate Midland’s corporate WACC. Be prepared to defend your specific assumptions about the various inputs

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