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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[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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Applied Research Project Course: IS 535 Submitted: 04/14/2011 Introduction HSBC is one of world’s largest banks with electronic commerce, which consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. With HSBC, the amount of trade conducted electronically has grown significantly with widespread Internet usage. ("HSBC" 2009)
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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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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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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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QUESTIONS FOR THE OVERALL ASSIGNMENT 1. What is the best way to estimate the company and divisions’ cost of capital? Answer: The best way to estimate the cost of capital is by using the CAPM (Capital Asset Pricing Model) where the Weighted-Average Cost of Capital (rwacc) is given by the formula [pic] Where, D is the market value of the net debt E is the market value of the total equity V is the total market value of debt and equity = D + E
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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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4. ¿Considera que es apropiada la selección que hace Midland del EMRP (Equity Market Risk Premium)? ¿Por qué? Si no la considera apropiada, ¿Qué recomendaciones haría?, y ¿por qué? En este caso de estudio, el rendimiento de los bonos del Estado han sido tomados como una medida de rendimiento libre de riesgo. Sin embargo, el rendimiento libre de riesgo puede ser tomado para ser otro tipo de rendimiento también. En el Exhibit 6 del caso, la cantidad de Premium difiere, dependiendo del tiempo
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Midland Chemical Co. is negotiating a loan from Manhattan Bank and Trust. The | | small chemical company needs to borrow $500,000. | | | | | The bank offers a rate of 8¼ percent with a 20 percent compensating balance | | requirement, or as an alternative, 9¾ percent with additional fees of $5,500 to cover | services the bank is providing. In either case the rate on the loan is floating (changes as | the prime interest rate changes), and the loan would be for one year. | | | |
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