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
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Midland Energy resource, Inc. i. 1 Let’s assume that the Midlands borrows its debt at the yield rate of US Treasury Bonds, which is theoretically the minimum choice, and Midlands is going to pay back the debt in a recurring annual payment. We can therefore estimate the amount of annuity that Midland is going to pay back annually. Although we are only going to analyze the single debt option, we should nonetheless keep in mind that Midlands may choose to use a combined debt strategy, which is
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senior vice 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?
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Consequently, we need to take the time horizon into consideration to find out the most suitable risk-free rate. Midland Energy Resources is a well-established company with 120-year history. It is not a company which relies on seeking special opportunity to earn instant profit so that 1-Year T-bond rate is obviously not a proper option. Instead, a long-term development is expected through capital allocation. Here, we choose 30-Year over 10-Year T-bond rate. Someone may argue that 10-Year is suitable
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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
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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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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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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 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, 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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