Pioneer Petroleum

1470 Words6 Pages
Pioneer Petroleum is a multinational corporation that is in position to capitalize on investments all around the World. Within the industry Pioneer’s gasoline are among the cleanest burning fuels. They are better position than most to meet strict environmental guidelines as they currently have clean efficient running plants positioned to capitalize on less polluted products. Also Pioneer Petroleum is heavily involved in exploration and devilment. From 1924 to the present, pioneer has been able to expand both vertically and diversify horizontally. With such resources and capital, the company has to oversee so many opportunities and ventures. Presently the company is at odds over whether they should use a company wide cut off rate based on…show more content…
One of the problems with divisional rates, as the advocates for the single rate contend, is that the categories suggested were not helpful in grouping projects by their risk. Although the use of multiple divisional hurdle rates may capture the appropriate discount rate for most projects (given that most projects among the division carry similar characteristics), a more accurate determinant for evaluating projects within a division would be to use multiple discount rates based on individual projects. Assuming that all projects within a division carry the same risk may potentially lead to projects being accepted or rejected in an inappropriate manner. Similar to the case in which one corporate discount rate is used, projects that are riskier than average would be mistakenly accepted and low risk project would be rejected. A situation in which this would occur would be in the volatile tanker industry, which proved to be devastating for many companies in the industry. Under divisional rates Pioneer would evaluate tanker investments under the transportation division, which has a much lower discount rate than is realistic for high-risk tanker investments. Pioneer should consider using discount rates for individual projects within divisions based on their relative risk factor. One tool the company can use to measure project risk is through Beta. A project that is considered to be more risky than the industry norm

More about Pioneer Petroleum

Open Document