Midland Energy Resources Inc - Case Study Example

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So, Midland should not use single corporate hurdle rate as this will cause disruption in the evaluation of the investments of the company. The evaluation should lead not mislead a company…
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Midland Energy Resources Inc
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Download file to see previous pages .15 (5%) = 10.73%rD = rf + E&P Spread to TreasuryrD = 4.98% + 1.60% = 6.58% rE 10.73% rD 6.58% tax rate 39% D/E 39.8% E 100units D 39.8units V 139.8units E/V 0.715308 D/V 0.284692 Wacc for E&P 8.818%
b) R&MrE = rf + β(EMRP)rE = 4.98% + 1.20 (5%) = 10.98%rD = rf + R&M Spread to TreasuryrD = 4.98% + 1.80% = 6.78% rE 10.98% rD 6.78% tax rate 39% D/E 20.3% E 100units D 20.3units V 120.3units E/V 0.831255 D/V 0.168745 Wacc for E&P 9.825%.
Corporate D/E = Average ( E&P D/E, R&M D/E, Petrochemical D/E)59.3% = Average(39.8%, 20.3%, Petrochemical D/E)Petrochemical D/E = 117.8% rE 11.98% rD 6.33% tax rate 39% D/E 117.8% E 100 units D 117.8 units V 217.8 units E/V 0.459137 D/V 0.540863 Wacc for Petrochemical ...Download file to see next pagesRead More
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