Pioneer Petroleum Case Analysis Essay

Becky Price replaced her oil furnace with a propane furnace back in 2006, but the oil furnace’s pipes were still in place. Price canceled her contract for oil refills with High Pointe Oil Company, but there was a problem on November 2007, in which Price’s address was added to the list of oil fill ups and the truck driver filled up the oil pipes with 400 gallons of fuel oil which caused the destruction of Price’s house and her belongings. So, Price sued the company for the failure of not removing the oil furnace’s pipes, including for non-economic damages such as emotions and feelings.

General speaking, WACC is the rate that a company’s shareholders expect to be paid on average to finance its assets, and it is the overall required return on the firm as a whole. Therefore, company directors often use WACC to determine whether a financial decision is feasible or not. In this case, I will choose 9.38% as discount rate. The reason why I choose 9.38% as discount rate is because the estimated Debt/Equity is 26% under the assumptions by CFO Sheila Dowling, which is most close to 25% of Debt/Equity from the projected WACC schedule. There might be some flaws existing by using WACC as discount rate. As we know, the cost of debt would be raised significantly as the leverage increased. The investment will definitely increase the firm’s current debt. So, the cost of debt would not keep at 7.75%.

Before moving forward to compute the present value of these cash flows, a terminal value is required to forecast the long term value of the company after 5 years. . Following formula is used to calculate the terminal value.

Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010). Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and yet certain issues will always arise. This case attempts to tackle two approaches in real asset valuation: Discounted Cash Flow (DCF) analysis and the issues surrounding such, as well as the Black-Scholes Model for Real Options. Questions to be addressed in the study are:

April 20, 2010 was the beginning of the end for British Petroleum. BP was started in 1901 by William Knox D’Arcy. Their mission is to operate oil and natural gas exploration, while marketing and distributing all over the globe. The primary issues the company faces are rebuilding their business after the tragic oil spill, their low oil prices and internal leadership promotions. Following the 2010 oil spill, all of BP’s top executives were fired, and the company has continued to promote internally, as recent as February of 2016. The company has been trying to rebrand itself and fix its disastrous public image that resulted from the poorly handled oil spill. Due to these internal promotions, no new ideas have been introduced into the company and their efforts in recreating themselves have since stalled, leading to unmotivated employees and decreased profits. Although British Petroleum has solid production sites in Gulf of Mexico, Alaska, and various areas of the U.S, the brand’s name remains so tainted from past violations. The declining price of oil, along with that environmental factors that affect the company, both nationally and globally, have exacerbated this stall and caused the company a major issue in recovering their public image, reputation, brand name, stock prices, and overall prosperity. These factors have certainly not been beneficial to the company in recovering from the sixty-one billion dollars BP has had to pay as result of

The case study on Pacific Oil Company shows from beginning to end the role of power in the outcome of a negotiation. From the beginning, the problem that Pacific Oil Company faced as it reopened negotiations with Reliant Chemical Company was that they did not assert the power necessary to really end up with the outcome of the negotiation they were hoping for. The case study points out several factors that Pacific Oil Company is trying to achieve in the contract negotiations with Reliant Chemical company: the change to a surplus of VCM in the market, the possibility of Pacific Oil needing a supply of their own of VCM to produce their own PVC, and the start-up of several other companies in the production of VCM (Lewiski, n.d.). These

In 2016, the crude oil price movement prices were unpredictable. The OPEC reference basket dropped 10 percent to $43.22 per pound. The ICE Brent and NYMEX WTI both went down by 8.4 percent with ICE Brent at $47.08 per pound and NYMEX WTI at $45.76 per pound. This showed that there were uncertainties in the petroleum market. The future prices were predicted for 2017 that it would move higher. The World’s economic growth predictions was the same at 2.9% for 2016 but increased to 3.1% for 2017. Because of the 3rd quarter of 2016 in Japan and US, the OCED growth went from 1.6% to 1.7%. The demand for oil growth in 2016 has been increasing slightly to 1.24 mb/d. In 2017, the demand will be predicted with a decrease to 1.15 mb/d. OECD will

10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.

The mixture of debt-equity mix is important so as to maximize the stock price of the Costco. However, it will be significant to consider the Weighted Average Cost of Capital (WACC) as well so that it can evaluate the company targeted capital structure. Cost of capital (OC) may be used by the companies as for long term decision making, so industries that faced to take the important of Cost of capital seriously may not make the right choice by choosing the right project(Gitman’s, ).

At first, WACC and CAPM was attempted to be used as a source of cost of capital. However, for WACC, there is no available proportion of debt and cost of debt for MW. For CAPM, no available data seems to support the acceptable

Once the prevailing WACC rate was found, the target WACC was calculated to be 9.00%. Again the CAPM model was used but a new the required rate of return on equity needed to be calculated. Since there is a change in the capital structure an unlevered beta needed to be determined. The Hamada equation was used to unlever the beta, which had a debt to equity ratio of .70, then to re-lever it again with a debt to equity ratio of 1.5; this changed the beta from

1. In a defined-contribution (DC) pension plan, the employee or employer, or both, make regular contributions to the plan. In the US, employees typically set aside a predetermined percentage of their earnings which is deposited to the plan and the employer will match that contribution. Ultimately, the amount of money available to the individual upon retirement is determined by the performance of their investments. Each employee retains the option to choose how to diversify their investments, while the employer will typically provide a “default allocation” option. The options available are generally very varied, and includes a number of index funds and actively managed mutual funds.

The WACC is the overall required return for a firm. Company directors will often use the WACC internally in order to make decisions, like determining the economic feasibility of mergers and other expansionary opportunities. Now, for Subway, Fred Deluca and Peter Buck had to decide in 1974 what they needed to do because they were approaching their deadline of acquiring 35 stores in a ten-year frame. Let’s assume that they took the formula of WACC to determine if they should franchise to meet their goal of go to the bank and get a loan to open up the stores within a year span.

oil in Iran before World War I, is now engaged in all aspects of oil

Petroleum engineers design and develop methods for extracting oil and gas from deposits below the earth’s surface. Petroleum engineers also find new ways to extract oil and gas from older wells. Typical duties of petroleum engineers are: design equipment to extract oil and gas in the most profitable way, develop ways to inject water, chemicals, gases, or steam into an oil reserve to force out more of the oil, develop plans to drill in oil and gas fields, and then to recover the oil and gas, make sure that wells, well testing, and well surveys are completed and evaluated, use computer-controlled drilling or fracturing to connect a larger area of an oil and gas deposit