Midland Energy Resources, Inc. Cost of Capital
Midland Energy Resources, Inc. Cost of Capital Questions
1. How are Mortensen’s estimates of Midland’s cost of capital used? How, if at all, should these anticipated uses affect the calculations?
2. Calculate Midland’s corporate WACC. Defend your assumptions about the various inputs to the calculations.
3. Should Midland use a single corporate hurdle rate for evaluating investment opportunities in all of its divisions? Why or why not?
4. Calculate the WACCs for the E&P and Marketing & Refining divisions. What causes them to differ from one another?
5. How would you compute the WACC for the Petrochemical division?