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midland case study solution

Category: Business Paper Type: Homework Reference: APA Words: 1500

Midland energy resources, Inc.: cost of capital

Summary:

Midland energy resources incorporation is the globally company who deals in energy operations with oil and gas exploration and production. The other business of companies is also deals in petrochemicals, refining and marketing. The case describes the estimation of cost of capital that is used to analyze the asset appraisal in financial and capital budgeting. Every division is allocated for the annual cost of capital estimation. Certain funds and reserves are criticized by the treasury staff and challenge inputs and assumptions regarding treasury estimation. The exploration and oil production is the profitable business for midland and shows higher growth structure specifically in this business sector. About 40 refineries around the world are the ownership of midland with the capacity of 5.0 million barrels a day distillation. The company faced problems in their net margins due to stiff competition and their products are highly commoditized.

The major progressive performance is taken by midland through vertical integrations as well as advancement in technology to make market leader in this business environment. The capital spending is allocated for specific corporate level units like in exploration and production was expected to exceed $ 8 billion and sustainability in refining and marketing without any growth. The need of investment is required specifically in petrochemical unit due to older facilities of midland. Investment policies are found by midland financial strategy to incorporate perfect execution of cost of capital. The financial strategy like overseas growth, value-creating investments, optimization in the capital structure and stock repurchase are the decisions taken by the midland for perfect estimation of cost of capital in their business units. The estimation of cost of capital is done through the cost of equity and cost of debt.

Issues:

Issues are faced by the midland energy resources for its three business units. In exploration and production of oil, the prices of oil are rises and underlay the plans of midland. The development of its undeveloped reserves as well as production expansions is heavily invested without budgeting of cost of capital. On the other hand, refining and marketing division faced huge competition and have small margins with long-term industry trend are associated. There is no growth is earning in refining and marketing and finds difficult in obtaining myriad approvals. The shortage of refining capacity in long-term global environment stimulates investment in this segment. In the petrochemical segment, the old machinery and facility are the problems in sustainability of business environment. There is minority interest is realized in the joint ventures in the petrochemical division.

Assignment Midland energy resources, Inc.: cost of capital ABC Date Midland energy resources, Inc.: cost of capital Summary: Midland energy resources incorporation is the globally company who deals in energy operations with oil and gas exploration and production. The other business of companies is also deals in petrochemicals, refining and marketing. The case describes the estimation of cost of capital that is used to analyze the asset appraisal in financial and capital budgeting. Every division is allocated for the annual cost of capital estimation. Certain funds and reserves are criticized by the treasury staff and challenge inputs and assumptions regarding treasury estimation. The exploration and oil production is the profitable business for midland and shows higher growth structure specifically in this business sector. About 40 refineries around the world are the ownership of midland with the capacity of 5.0 million barrels a day distillation. The company faced problems in their net margins due to stiff competition and their products are highly commoditized. The major progressive performance is taken by midland through vertical integrations as well as advancement in technology to make market leader in this business environment. The capital spending is allocated for specific corporate level units like in exploration and production was expected to exceed $ 8 billion and sustainability in refining and marketing without any growth. The need of investment is required specifically in petrochemical unit due to older facilities of midland. Investment policies are found by midland financial strategy to incorporate perfect execution of cost of capital. The financial strategy like overseas growth, value-creating investments, optimization in the capital structure and stock repurchase are the decisions taken by the midland for perfect estimation of cost of capital in their business units. The estimation of cost of capital is done through the cost of equity and cost of debt. Issues: Issues are faced by the midland energy resources for its three business units. In exploration and production of oil, the prices of oil are rises and underlay the plans of midland. The development of its undeveloped reserves as well as production expansions is heavily invested without budgeting of cost of capital. On the other hand, refining and marketing division faced huge competition and have small margins with long-term industry trend are associated. There is no growth is earning in refining and marketing and finds difficult in obtaining myriad approvals. The shortage of refining capacity in long-term global environment stimulates investment in this segment. In the petrochemical segment, the old machinery and facility are the problems in sustainability of business environment. There is minority interest is realized in the joint ventures in the petrochemical division. Solution: Midland developed its financial strategy in 2007 for the perfect execution of cost of capital spending in their business units. The investment in overseas growth gained the higher rate of equity in the sustainability of growth structure. Discounted cash flows as well as weighted average cost of capital are analyzed for capital employed in the project. The optimization of capital structure in the borrowing of energy reserves and refining facilities are prudently exploited. Reassessment in capital borrowing helps in quantifying the oil prices. Target debt ratio is set for attaining high performance in operating cash flows. In last stock repurchases decision are considered when stock price fell below the stock intrinsic values. The computation of cost of debt and cost of equity is determined by midland for the effectiveness in their cost of capital spending in various business units.

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