Business, 16.04.2020 04:39 suzieuzie

(1) How are Mortensen’s estimates of the cost of capital used at Midland? How, if at all, should these anticipated uses affect the calculations? Mortensen’s estimates of the cost of capital are used at Midland for asset appraisals for capital budgeting and accounting, company performance assessments, mergers and acquisitions, and also stock repurchasing decisions. Since cost of capital is a variable of WACC calculations, it needs to be adjusted if it is more or less risky in regard to firm risk. It should also be used in performance assessments of the firm, but should also consider the current economic environment, the general industry cost of capital, and the size of the firm. Cost of capital is also needed to calculate stock price changes, essential knowledge for stock repurchasing. (2) Calculate Midland’s corporate WACC. Make sure to explain your specific assumptions about the various inputs that you used in your calculations. (3) Should Midland use a single corporate hurdle rate for evaluating investment opportunities in all its divisions, or should each division have their own cost of capital? (4) Compute a separate cost of capital for E&P and Marketing & Refining divisions. What causes them to differ from one another?

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(1) How are Mortensen’s estimates of the cost of capital used at Midland? How, if at all, should the...

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