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
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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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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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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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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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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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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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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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Finance Course: Corporate Finance MBA−10 California College for Health Sciences MBA Program McGraw-Hill/Irwin abc McGraw−Hill Primis ISBN: 0−390−55204−6 Text: Harvard Business School Entrepreneurship Cases Corporate Finance, Seventh Edition Ross−Westerfield−Jaffe Harvard Business School Finance Cases This book was printed on recycled paper. Finance http://www.mhhe.com/primis/online/ Copyright ©2005 by The McGraw−Hill Companies, Inc. All rights reserved. Printed in the United
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Learning with Cases INTRODUCTION The case study method of teaching used in management education is quite different from most of the methods of teaching used at the school and undergraduate course levels. Unlike traditional lecture-based teaching where student participation in the classroom is minimal, the case method is an active learning method, which requires participation and involvement from the student in the classroom. For students who have been exposed only to the traditional teaching methods
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