How does Midland use the cost of capital for in their business?

Midland Energy Resources, Inc. uses the Cost of Capital estimates for various purposes, including asset appraisals, performance assessments, M&A proposals, and stock repurchase decisions.

What causes the division Waccs calculated above to differ from one another?

What causes them to differ from one another? calculation of unlevered beta, cost of debt, cost of equity and the WACC of both the divisions. While the cost and debt and the cost of equity does not vary much between the two divisions, the target capital structure of the divisions influences the cost of capital.

How are Mortensen’s estimates of Midland’s cost of capital used?

Mortensen’s estimates of Midland’s cost of capital were mainly used in asset appraisals for performance measures, M&;A proposals, stock repurchase decisions and both capital budgeting and financial accounting.

Should Midland use a single corporate hurdle rate?

Midland should not use single corporate hurdle rate as this will mislead evaluation of the investments, and will result on Midland invest on risky projects and will become risky a corporate by time.

How do you calculate beta levered?

The formula to calculate the Levered Beta is:Unlevered beta (1+ (1-tax rate) (Debt/Equity)) = 1.26 x (1 + (1-20%) x 8%) = 1.34These formulae can be used to plot the different risk factors associated with varying amounts of debts and equity values.

How to calculate Midland energy resources, inc.corporate WACC?

Calculate Midland Energy Resources, Inc.’s corporate WACC. Examine and provide arguments that support your choice of various assumptions and inputs. This discussion should include, but not limited to, an examination of Capital structure weights, Risk-free rate, Equity market risk premium, beta, cost of equity, tax rate, and cost of debt.

How does Midland energy use cost of capital?

Uses of estimates of the cost of capital and the effects of the uses on the calculations Midland Energy Resources, Inc. uses the Cost of Capital estimates for various purposes, including asset appraisals, performance assessments, M&A proposals, and stock repurchase decisions.

Do you use one hurdle rate for Midland energy?

Please refer to Exhibit 1 for detailed calculations. Midland Energy Resources, Inc. should not use a single hurdle rate for all of its divisions since each of its divisions are different in size, margins, investment terms, capital structure, and risk. Using a single hurdle rate would assume that all the divisions are similar, which is not the case.

Is there a case solution for Midland energy?

This case solution includes an Excel file with calculations. You will receive access to two case study solutions! The second is not yet visible in the preview.