Midland

We determine the amount of capital financing needed by taking line (10), after-tax net income and adding back line (16) depreciation, to determine actual capital needed given the forecast of capital expenditure. We made certain assumptions, such as, cash levels will be kept roughly in line with 1983 level of $542 million. In addition, we assumed that tax provisions were actually paid out each year, rather than accruing a liability or deferring taxes to future dates. According to our assumptions and using the forecast we have determined that MCI needs approximately $4.2 billion dollars in the next 4 years, from 1984 through 1987. After 1987 capital expenditure begins to taper off and growth in EBITDA increases to a point where it is enough to finance internally the planned capital expenditures. Over 75% of the capital requirements comes in the later 2 years, in 1986 and 1987.

In this case study of Midland Energy Resources, Inc. The cost of capital of the company and its subdivisions are evaluated. To undertake different calculations such as; The asset beta, Weighted Average Cost of Capital (WACC). Midland is a global company that performs operations of oil, gas, refining and marketing of petrochemical products. Within this work is analyzed as the company to maintained a profit margin in recent years by making the calculation of cost of capital. The cost of capital are the profits that a company is to acquire in certain investments. In this way you can keep your cost on the market.

in our calculations, as this company exhibited dramatic value differences to others in the sample, (likely to skew our results and prove misleading). Using the average of the revised sample field for each ratio, we inserted Torrington’s values where appropriate to generate an entity value. The findings generated two values for Torrington, 606 million and 398 million. Taking the average of these two numbers, Torrington exhibited a relative value of 502.41 million. Because of the lack of related information given in the case, and the often large differences in measures amongst competitors, different capital structures, internal management strategies, there remained many unknowns in our model. We decided it would be best to use this valuation to reaffirm our assumptions in our DCF valuation. (Please see exhibits)

· * From the scenario, take a position for or against TFC’s decision to expand to the West Coast. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, IRR, Payback Period, etc.) that you used to arrive at your decision.

1. Candice Corporation has decided to introduce a new product. The product can be manufactured using either a capital-intensive or labor-intensive method. The manufacturing method will not affect the quality or sales of the product. The estimated manufacturing costs of the two methods are as follows:

Cost of Capital for Contracting Services Division was also calculated through the above methods. However, the unleveraged Beta could not be calculated in the same way as for the two other divisions due to the absence of the comparable businesses from which the unleveraged Betas (Bu) could be obtained. Consequently, the Bu was back-factored from the relationship between the divisional Bu's (or Buc - contracting, Bul - lodging, and Bur - restaunrants ) and the company Bu (or Bum - Marriott) expressed in the following formula:

BROTHERSON ET AL. – “BEST PRACTICES” IN ESTIMATING THE COST OF CAPITAL: AN UPDATE 15 “Best Practices” in Estimating the Cost of Capital: An Update W. Todd Brotherson, Kenneth M. Eades, Robert S. Harris, and Robert C. Higgins “Cost of capital is so critical to things we do, and CAPM has so many holes in it—and the books don’t tell you which numbers to use… so at the end of the day, you wonder a bit if you’ve got a solid number. Am I fooling myself with this Theories on cost of capital have been around for decades. Unfortunately for practice, the academic discussions typically stop at a high level of generality, leaving important questions This paper updates our earlier work on the state of the art in cost of capital

Regarding cost of capital, the assumption made by Hudson Bancorp about equity investors somewhat oversimplifies the market. An increase in financial risk decreases a firm’s market value which

Mortensen’s estimates of Midlands’s cost of capital are. The Mortensen’s estimates are used for Asset appraisals for capital budgeting and accounting, assessment of performance analysis, merger and acquisition possible proposals, and possible stock repurchasing/issuing decisions or dividends and retained earnings. The Cost of capital is an essential component in WACC calculations.

The final model used to compute the cost of capital was the earning capitalization model. The problem with this model is that it does not take into consideration the growth of the company. Therefore we chose to reject this calculation. The earnings capitalization model calculations were found this way:

In order to calculate the cost of capital for the contract service division I will use most of the formulas

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In our opinion, it is justifiable to use the firm’s weighted average cost of capital as the divisional cost of capital. If the

The divisional-based cost of capital would be calculated similar to the way PPC estimated its original WACC, except it should factor in each division separately first. First, an estimate would be made of the usual debt and equity proportions for each separate division. Next, the cost of debt and equity for each division would be calculated in accordance with the concepts followed by PPC. The factors of debt and equity costs and would be combined to determine the WACC, or minimum acceptable rate of return for the NPV of each individual division. Using separate divisional rates would reflect the risks inherent in each separate division of the corporation. This would also help create a better benchmark of each division with their respective industries.

The agenda of every prospect industry to dominate and reap better from a venture is to invest. This is according to the economy to the economy of Saudi Arabia in fourteen months ago when they made a decision regarding the production of crude oil. They had to cut billions of dollars in the expected future spending. These strategies were meant to ouster the rivals, and later invest better part of the revenues in terms of exploration of new fields, state of the art technology in production and also refining. Earlier on, the Riyadh’s revenue had been shrunk, cutting deep to the economy since this was the backbone of the economy (Kunstler, 2006). In order to secure a better market share, a decision has to be reached, which might in the short have negative impacts in the economy, and reap better in future. The giant producer in the Middle East and part of the world may have measured the depth of water using both legs. This decision is based on the