Midland Energy Resources Case 
Midland Energy Resource Case Study
Introduction
Midland Energy Resources is a fairly successful global energy company which had been incorporated more than 120 years previously and in 2007 had more than 80,000 employees. It has three main operations, oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. E&P is the most profitable segment of Midland and its net margin over the previous five years was among the highest in the industry. Its largest division is R&M with the Petrochemical division being the smallest. The capital spending in R&M would remain stable and in petrochemicals was expected to grow. The four primary goals of Midland’s financial strategy are to fund substantial overseas growth, invest in value-creating projects, optimize its capital structure, and repurchase undervalued shares.
Janet Mortensen, the senior vice president of project finance for Midland Energy Resources, has been involved in estimating the cost of capital of the company. She calculated the weighted average cost of capital (WACC) for the company as a whole, as well as each of its three divisions. The estimates are used for asset appraisals for capital budgeting and financial accounting, performance assessments; merger and acquisition proposals and stock repurchase decisions.
Financial Analysis
Cost of Capital: By definition, cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk1. For companies which use a combination of debt and equity to finance their businesses, their overall cost of capital is derived from a weighted average of all capital sources, also known as the weighted average cost of capital (WACC).
What we use “Cost of Capital” to evaluate? Cost of capital is an important component of business valuation work. Midland uses the cost of capital to evaluate value of the company
Introduction
Midland Energy Resources is a fairly successful global energy company which had been incorporated more than 120 years previously and in 2007 had more than 80,000 employees. It has three main operations, oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. E&P is the most profitable segment of Midland and its net margin over the previous five years was among the highest in the industry. Its largest division is R&M with the Petrochemical division being the smallest. The capital spending in R&M would remain stable and in petrochemicals was expected to grow. The four primary goals of Midland’s financial strategy are to fund substantial overseas growth, invest in value-creating projects, optimize its capital structure, and repurchase undervalued shares.
Janet Mortensen, the senior vice president of project finance for Midland Energy Resources, has been involved in estimating the cost of capital of the company. She calculated the weighted average cost of capital (WACC) for the company as a whole, as well as each of its three divisions. The estimates are used for asset appraisals for capital budgeting and financial accounting, performance assessments; merger and acquisition proposals and stock repurchase decisions.
Financial Analysis
Cost of Capital: By definition, cost of capital refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment with equal risk1. For companies which use a combination of debt and equity to finance their businesses, their overall cost of capital is derived from a weighted average of all capital sources, also known as the weighted average cost of capital (WACC).
What we use “Cost of Capital” to evaluate? Cost of capital is an important component of business valuation work. Midland uses the cost of capital to evaluate value of the company
References: 1: http://www.investinganswers.com/financial-dictionary/stock-valuation/cost-capital-112 Investing Answers 2: http://en.wikipedia.org/wiki/Weighted_average_cost_of_capital Wikipedia 3: http://en.wikipedia.org/wiki/Capital_asset_pricing_model Wikipedia 4: https://www.macabacus.com/valuation/comparable-companies