Petrolera Zuata, Petrozuata C.A.
Kausik Ash |
Javier Echave |
Trang Ho |
Sarah Nash |
Ayse Zeynep Saka |
Raj Sambasivan |
1a Financing of Orinoco Basin
The generally understood criterion for using project finance to fund a project and Petrozuata 's compliance comparison are as below;
Legally independent company = Once the project was completed, Petrozuata would become a stand-alone entity, with the sponsors warranty coming to an end
Non-recourse debt = at completion the project debt would also become non-recourse to the sponsors.
Sponsor holding most of the equity are also suppliers/customers = Conoco would purchase the first 104,000 BPCD from Petrozuata upon production,
Single purpose …show more content…
Avg. annual change in oil price
The average Maya price was relative consistent for the 10 year period of 1986-1996 ($14.27) vs. the most recent 5 year period of 1991-1996 ($14.25). Both of these averages are lower than the average for 1982-1996 ($16.57), so the assumption of 2.5% annual growth seems aggressive.
VZ Govt. royalty rate
According to the case (p.3), the royalties paid by operating subsidiaries of PDVSA are 16.67%.
Same as given.
Market Risk Premium
Utilizing the market risk premium listed in Exhibit 11.
Country Risk Premium
Utilizing the country risk premium listed in Exhibit 11.
In addition, we noted that the asset beta, risk-free rate and tax rate were different from the values given in the case, so we altered these to be consistent with the case [asset beta: 0.6 0.38 (Exhibit 11 – p. 21), risk-free rate: 6.81% 5.60% (Exhibit 11 – p. 21) and tax rate: 34% 67.7% as an operating subsidiary of a state-owned enterprise).
Click here to unlock this and over one million essaysGet Access
2. Is there evidence of disparate impact against African Americans in the decisions that were made? On what basis did you arrive at this position? Illustrate how the “80 percent rule” can be used with the data in Exhibit 3.2.1 and whether there was a violation of this rule.
The Risk Free Rate of a 30-year Treasury Bond is given as 8.95%. Also given is the Market Risk Premium of 7.43% and a firm wide equity beta of 1.43. The tax rate is assumed to be 44.1%, the same as 1987’s 175.9M tax paid from 398.9M EIBT.
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)
The suppliers of crude material, parts and administrations to the firm will be the source control over the organizations. This is on account of the suppliers may decline to chip in with the organizations by charging to a great degree high charge for a few assets. Along these lines this in influence the organization's expense of creation because of the extravagant crude material. Why the supplier will deal the cost with the Mercedes-Ben Company? This is on the grounds that the suppliers have the altered clients in the business furthermore they are solid premise in the
Government interest rates from Table B, 8.72%. The 10 year rate was chosen to be consistent with time lengths. Then the value for equity, debt and the firm need to be calculated, this is a simple step. The market price of the shares is multiplied by the number of outstanding shares to find the value of equity and the book value of long term debt is used for the value of debt and the value of both equity and debt are added together to come up with the value of the firm. The weight of the equity and debt can now be calculated by dividing the value of equity or debt by the value of the company. Lastly, the tax rate was calculated by using the balance sheet, given in exhibit 1, to determine income taxes paid and dividing it by earnings before interest and taxes for each of the last ten years then by taking the average of the ten years tax rates.
Project finance is a kind of Financing that has a priority does not depend on the creditworthiness of the sponsors proposing the business idea to launch the project. Approval does not even depend on the value of assets sponsors are willing to make available as collateral. Instead, it is basically a function of the project’s ability to repay the debt contracted and remunerate capital invested at a rate consistent with the degree of
1a. Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74 over T-bonds. Which beta, risk-free rate, and risk premium did you use? Why? Financing Components Debt Equity Market Values Weight Cost of Capital (After Tax) $ 6,823,736,197 0.85 3.72% $ 1,176,263,803 0.15 28.18% Total: $ 8,000,000,000 1.00 WACC WACC Inputs: Beta: Risk-Free Rate: Market Risk Premium: Pre-tax Cost of Debt: Income Tax Rate:
We added the market risk premium of 6% to the 4.60% because 6% is the rate that investors want above the risk free rate due to the risk of the investment. This equals 10.6% which is then multiplied by the beta of the company of 1.1. Beta is a measure of the stock’s volatility in relation to the market. A beta of 1.1 means that Worldwide Paper Company has slightly higher volatility than the market does. The total cost of equity then calculates to equal 11.2%. This tells us that given the risk taken in investing in the company, a shareholder should expect an 11.2% return.