Make sure you explain clearly your method and your choice of inputs. Hurdle Rate Not Adequate What should Midland do? Midland was conservative compared to some of its large competitors, but it has a group of trader in- house who actively managed currency. The senior vice president of project finance for a global oil and gas company must determine the weighted average cost of capital for the company as a whole and each of its divisions as part of the annual capital budgeting process. . I do not think it is proper. First, the appropriate risk-free rate to use for Midland is unclear.
The Petrochemicals division will not be addressed. It had been incorporated more than 120 years and had more than 80,000 employees in 2007. What about a too low estimate? The primary role of Janet Mortensen is frequently calculating corporate and divisional costs of capital at division level as well as corporate level. They also needed to account for competition from areas such as the Middle East, Central Asia, Russia, and West Africa. Providing two undesirable alternatives to make the other one attractive is not acceptable.
Changes in the market sometimes drove actual debt ratios away from targets. Words: 950 - Pages: 4. Please place the order on the website to order your own originally done case solution. However, capital structure decision is difficult for a small-scale firm because of small initial investment, but a company like Midland has a lot of opportunities while making capital structure decision. This is because optimal capital structure not only saved the company from bankruptcy and agency cost, but also contributed to handling the matter of tax exhaustion.
For instance, the tax rate is assumed to be 40%. Mortensen computed the cost of debt for each division by adding a premium, or spread, over U. They have been incorporated more than 120 years previously and they have 80,000 employees in 2007. There are some procedures which they don not perform. It is located in the Greater Toronto Area. The divisions of Midland Energy Resources, Inc.
Interest rate and commodity risks within a set of guideline approved by the Board. To establish the proper mood Village Volvo has an office, waiting area, storage, and four bays. However, when more than one few companies uses the same resources and provide competitive parity are also known as rare resources. If the company holds some value then answer is yes. Midland Energy Resources determine that the shares are undervalued with a comparing from the intrinsic value of the shares and the actual stock price.
Therefore, it is necessary to block the new entrants in the industry. We can use average asset betas in segment and substitute these average asset betas for divisional asset betas. Rare and valuable resources grant much competitive advantages to the firm. They would manipulate the stock price to correlate with the energy prices. Midland Energy Midland Energy Resources Inc. There may be multiple problems that can be faced by any organization. The target debt to value ratio is 42%.
Midland owned 25 manufacturing facilities and 5 research centers around the world. Wind turbines are placed in areas where they are most conveniently used. With oil prices at historic highs in 2007, Midland anticipated heavily investment in acquisitions of promising properties. . Students are required to un-lever and re-lever betas and, choose an appropriate risk-free rate, and compute costs of debt and equity.
. Multiple Risk-adjusted discount rates 3. For all these goals, an excellent financial analysis is considered necessary, especially for the evaluation of the cost of capital. . Multi-Divisional Comapnies Discount Rate, based on the U. Submitted By Saree Words 1045 Pages 5 Introduction Midland Energy Resources have a senior vice president, Janet Mortension, of project finance. .