Midland Energy Resources, Inc.: Cost of Capital
ESE 540 Case Study 1: Midland Energy Resources, Inc.: Cost of Capital Team S
As a profitable company that has been incorporated more than 120 years and with more than 80,000 employees, Midland Energy Resources provides a wide range of operation and services, which can be concluded with three major divisions: Exploration & Production, Refining and Marketing and Petrochemicals. Janet Mortensen, the senior vice president of project finance for the company, has been asked to calculate the WACC of the company, including the company’s three divisions as part of the annual assessment of Midland’s financial condition. Given the exhibits of all relevant financial information, accurate calculations can be done by choosing appropriate data.
As mentioned in the document, Midland Energy Resources had been incorporated more than 120 years previously. In order to do the calculation of cost of debt and cost of equity for such a historical company, 1-‐year or even 10-‐year risk-‐free rate values are not accurate enough. The risk-‐free rate with the longest period should be suitable for this situation. Thus the value 4.98% (30-‐year) should be used.
Due to the document, the cost
As a profitable company that has been incorporated more than 120 years and with more than 80,000 employees, Midland Energy Resources provides a wide range of operation and services, which can be concluded with three major divisions: Exploration & Production, Refining and Marketing and Petrochemicals. Janet Mortensen, the senior vice president of project finance for the company, has been asked to calculate the WACC of the company, including the company’s three divisions as part of the annual assessment of Midland’s financial condition. Given the exhibits of all relevant financial information, accurate calculations can be done by choosing appropriate data.
As mentioned in the document, Midland Energy Resources had been incorporated more than 120 years previously. In order to do the calculation of cost of debt and cost of equity for such a historical company, 1-‐year or even 10-‐year risk-‐free rate values are not accurate enough. The risk-‐free rate with the longest period should be suitable for this situation. Thus the value 4.98% (30-‐year) should be used.
Due to the document, the cost