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2 Found helpful • 5 Pages • Essays / Projects • Year: Pre-2021
Midland Energy Resources: Cost of Capital Executive Summary Midland Energy Resources Inc. is a global energy company with operations centred on three interrelated elements - namely oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. The expansive list of factors that can influence each of these divisions in varying ways necessitates the use of distinct costs of capital. The importance of this is elaborated on in Section I. This also applies to the firm as a whole, which might consider organisation-wide projects that have wide reaching implications for all elements of the business. Section II discusses what this unified corporate WACC may look like. This WACC was calculated to be 8.07%. The same argument can be made for the corporate hurdle rate of the firm. The idiosyncrasies of each individual division necessitate a unique hurdle rate that can be used to assess potential investments. Section III considers this opportunity and the consequences of doing so. Turning to a numerical analysis of the firm, Section IV and Section V delve into specifics regarding the WACC of each division. Their influences – such as the cost of debt and equity – are disambiguated and discussed at depth.
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