Sci 488 Spring 2012 - Midland Energy

Midland Energy Case

Sci 488 Spring 2012

Purpose

To apply cost of capital and capital structure theories and calculations.

Type

Midland Energy is a team case.

Requirements

1. The case is to be submitted through the Assignment link in Blackboard by 7:29am on March 14, 2012. Please submit Excel spreadsheets and your PowerPoint presentation with your write-up. The write-up should include a cover page with the course section, team number, and names of all team members. The Excel spreadsheet should include your cost of capital analysis of Midland and its divisions.

2. Your presentation and write-up should be from the perspective of a project team reporting to Janet Mortensen (SVP Finance) the results of your analysis and recommendations.

3. The teams will present their cases in class on March 14, 2012 and March 16, 2012. The presentations and write-ups should address the questions and requirements below.

a. Create a reorganized Balance Sheet for Midland and then use that to estimate the current Midland capital structure.

b. Calculate the Cost of Equity for Midland Energy using the CAPM. Be prepared to explain and your assumptions and calculations.

i. Explain your choice of Beta, the EMRP and risk-free rate used to determine the Cost of Equity capital in the CAPM.

c. Compute the WACC for Midland Energy using the appropriate weights, the CAPM Cost of Equity, and the appropriate cost of debt. Be prepared to explain your assumptions and calculations.

d. Repeat the process of computing the Cost of Equity and WACC for each division of Midland.