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 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
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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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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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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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Question III: Should Midland use a single corporate hurdle rate for evaluating investment opportunities in all of its divisions? Why or why not? It depends on what kind of investment opportunity is proposed. If it is an investment that affects the company as a whole on the corporate level then they should use a corporate rate. If it is an investment that applies only to specific divisions then that division’s hurdle rate should be used. Using a corporate rate for division specific investments
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Índice Midland Energy Resources, Inc. 3 Exploración y Producción de Hidrocarburos 3 Refinación y Comercialización 3 Petroquímica 3 Problemática del Caso 3 Solución 4 Escenario 1 5 Supuestos: 5 Cálculo: 5 Escenario 2 5 Supuestos: 5 Calculo: 6 Conclusiones y Recomendaciones 6 Midland Energy Resources, Inc. Midland Energy Resources, es una compañía global de energía con operaciones en exploración y producción de petróleo & gas (E&P), refinación y comercialización
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In the case, Janet Mortensen prepared the annual cost of capital estimates for Midland Energy Resources Inc. and each of its three divisions. Estimates of the cost of capital were used in many analyses within Midland, including asset appraisal for both capital budgeting and financial accounting, performance assessments, M&A proposal, and stock repurchase decisions. No, they were using the formula for WACC to estimate the cost of capital. 2. Assume the business is on-going for a long period
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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 equation becomes: [pic] Then we can get, Jackson Energy,Inc: [pic] Wide Plain Petroleum: [pic] Corsicana Energy Corp: [pic] Worthington Petroleum:
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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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