various inputs to the calculations. Is Midland’s choice of the MRP appropriate? If not‚ what recommendations would you make and why? In order to calculate Midland’s overall corporate WACC we must first determine the cost of equity and the cost of debt. The cost of equity can be defined as the risk-weighted projected return required by investors‚ where the return is largely unknown. Therefore the cost of equity for the upcoming year can be inferred by using the Beta of equity in the CAPM formula
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Midland Energy Introduction: Midland Energy Resources‚ Inc. is a global multi-division energy company with operations in oil and gas exploration and production (E&P)‚ refining and marketing (R&M)‚ and petrochemicals. On a consolidated level‚ the company had 2006 operating revenue and operating income of $248.5 billion and $42.2 billion‚ respectively. Its largest division is R&M with the Petrochemical division being the smallest. Midland’s most profitable segment is its P&E division which generates
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1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses affect the calculations? Janet Mortensen‚ Senior Vice President of project finance for Midland Energy Resources has calculated yearly annual cost of capital investments for Midland and each of its three divisions. The three divisions consist of oil and gas Exploration and Production (E&P)‚ Refining and Marketing (R&M) and Petrochemicals. E&P is Midland’s most profitable
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Professor Smith Midland Energy Resources‚ Inc.: Cost of Capital Case Questions This case provides an opportunity to determine what cost of capital firms should use when firms are evaluating investment opportunities. The case addresses what inputs should be used in estimating the opportunity cost of capital for investors as well as which firms should be identified as comparables. 1. How are Mortensen’s estimates of Midland’s cost of capital used? How‚ if at all‚ should these anticipated uses
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Midland Chemical Assignment 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 8 ¼ percent with a 20 percent compensating balance requirement‚ or as an alternative‚ 9 ¾ 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). The loan would be for one year. a. Which loan carries
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What is an International Freight Forwarder? ... "Once upon a time‚ people thought of customs brokers and freight forwarders as simply agents somehow linked to the shipping industry. Now‚ at last‚ these go-betweens are being given their due as crucial middlemen in making life easier for importers and exporters. .... Simply put‚ the freight forwarder is the cargo expediter. As intermodal transportation becomes more complex‚ the job of freight forwarder becomes more essential and difficult.
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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 accounting‚ performance appraisals‚ M&A proposals‚ and stock repurchase decisions. There has been
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Midland Energy Resources‚ Inc.: Cost of Capital Background Information: ➢ Janet Mortensen‚ Senior vice preside of project finance for Midland Energy Resources ➢ Midland Has three divisions o Exploring and Production(E&P) o Refining and Marketing (R&M) o Petrochemicals ➢ 2006 Operating Revenue-$248.5 billion Operating Income- $42.2 billion ➢ Estimated Cost of Capital used to analyses o Asset appraisal for capital budgeting o
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Treasury bonds in 2007 (4.98%) as the risk free rate in the 2007 WACC calculations. The reason is that majority of large firms and financial analysts report using long-term yields for bonds to determine the risk-free rate. Rf=0.0498 2. Cost of debt‚ which is determined by adding the spread to Treasury (1.62%) to the rate of 30-year treasury bonds in 2007. Rd=0.0498+0.0162=0.066 3. Cost of equity‚ the EMRP (5%) and D/E (59.3%) was taken out of the context of the case. βa=Equity Beta/(1+D/E)=
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As a result‚ the inventory supplies have to be ordered and shipped air freight; which is very expensive. 2. Air freight bills keep growing both in numbers and in total dollar value of freight transported. What are the factors that have contributed to the development of this situation? Do they reflect efficient or inefficient management of supply‚ inventories‚ and production in firms such as this one? Discuss. Air Freight bills keep growing because there isn’t enough inventory on hand to run a
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