Midland – a Global Energy CompanyEssay Preview: Midland – a Global Energy CompanyReport this essayMidland case reportMidland is a global energy company with operations in oil and gas exploration and production (E&P), refining and marketing (R&M), and petrochemicals. Janet Mortensen, senior vice president of project finance for Midland Energy Resources, was preparing her annual cost of capital estimates for Midland and each of its three divisions. In fact, estimates of the cost of capital were used in many analyses within Midland, including asset appraisals for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. Some of these analyses were performed at the division or business unit level, while others were executed at the corporate level. However, sometimes the results were not satisfied by the presidents and controllers, so this report is going to analysis the cost of capital.First of all, people should understand one thing which is how are Mortensen’s estimates of Midland’s cost of capital used? As we can see from the case the Mortensen’s estimates are used for asset appraisals for capital budgeting and financial accounting, performance assessments, M&A proposals and stock repurchase decisions. At division or business unit level as well as Corporate level. Cost of capital is an essential component in WACC calculations.            Next step is to calculate Midland’s corporate WACC. Mortensen computed the cost of debt for each division by adding a premium, or spread, over U.S. Treasury securities of a similar maturity. To find R, we do not use CAPM but we use the interest rate that we currently pay on the new loans. Consolidated Spread to Treasury is given on Table 1 as 1.62%. Then Rd = 4.98% + 1.62% = 6.60%. Tax rate is calculated based on the Exhibit 1 which is 39%. Actually, Midland used 5.0% as its Equity Market Risk Premium. The corporate β is publicly available, and as it represents corporate level β, I will use 1.25 as it is for Overall Corporate WACC calculation. Re = Rf+ β(EMRP) Re = 4.98% + 1.25 (5%) = 11.23%. By using the WACC formula the answer is 8.55%. Now we look back and discuss why better to use market premium. From the Exhibit 6, the traditional data showed nearly 6.0% EMRP, and the surveys showed lower EMRP (2.5% – 4.7%), a research over the industry with help from outsiders, who has broader industry knowledge, would result a better and latest EMRP for Midland. In addition, as a global company, midland would invest different business for diversification and also to reduce the risk. In Exhibit 5, the Equity Beta represents the risk factor of those divisions. Since the risk preferences are different per division, the hurdle rates for those divisions should also be different, and calculated based on the β of the division. Midland should not use single corporate hurdle rate as this will lead to a wrong decision on a risky investment which make a huge profit lose.
This summary of the Midland’s financials is a compilation of an analysis of Midland &# 8211 and its other assets. If the company’s investment models are used it would be easy to infer the WACCs present in the company’s assets. There are a few scenarios here which have different results. First, the company could be less successful and would be forced to increase capital or leave Midland to avoid competition. The company could then be forced to sell a large portion of its current portfolio or make capital restructure to increase returns with a capital allocation which would impact the equity. Second, Midland and other major companies would have higher equity risk in their investments. Third, those large companies would become over profitable. Fourth, companies that are underperforming, including the major companies like CFO, would be forced to diversify their portfolio. Finally, they are likely to invest heavily in an expensive commodity or other asset and the WACCs would be based on lower-risk than average risk. The conclusion would of course be to avoid midland (which is the WACC). This article is part of an ongoing series of articles covering the current Midland &# 8211, along with a series of other articles and links which detail the future of the company.
MATT MURRAY
http://www.mattmurray.com/
This Summary of the Midland’#8218;s Financials is a compilation of an analysis of Midland &# 8211 and its other assets. If the company’s investment models are used it would be easy to infer the WACCs present in the company’# 8211. Here are the CFO & Chief Executive Officers, senior leaders in the company, their CEO’s, and three directors for the last three yrs. A review of the company, the stock and its cash flow, and its overall and monthly performance can be found here in the company web site: http://www.mattmurray.com/investments.php
WALTER HENSEN
http://www.walter.com/
This summary of the Midland”# 8208;s Financials is a compilation of an analysis of Midland ‚# 8211 and its other assets. The company has a global footprint and a focus on creating value internationally, in the West or Latin America. It consists of over 30 employees and has two international headquarters in Dubai. The company is headquartered in Dubai, United Arab Emirates, and operating expenses in the UAE $55 million and $68 million respectively. The annualized financial statement is $35 billion. This company has been active for less than 18 mos in the past nine years while the most recent sales and revenues data from the company was released in September 2015. The company is also based in Abu Dhabi. This company also has three other subsidiary companies in the Middle East based in Saudi Arabia, Saudi Arabia and the United Arab Emirates. The company produces and sells a range of products ranging from automotive, electrical, and computer products to mobile phone and tablet product designs. The company has more than 17,000 employees overseas. On December 8, 2015, Wal.mart closed its second quarter of growth and its $45 billion global business in North America, while it closed its $40 billion North American quarter earnings and its $43 billion North American quarter results after closing $18 billion margin. This company has invested $17.5 billion in new debt financing and is one of the largest issuers of debt securities at $3.9 trillion. The company also provides strategic information and advisory services to leading global companies including HSBC, BP, Deutsche Bank & Bank of England, and AIG. This company’s global leadership in banking and real estate is the source of revenues for 70% of the company’s total revenue and a $3.9 billion global outlook. Wal.mart is the leading global retailer of low wage workers, retail operators, and health care providers, providing a broad range of services within the food service sector. This company also serves as a leader in the Internet and mobile applications market and is expanding its presence in Latin America, Africa, Asia, and the Middle East. It has approximately 6,000 stores around the world, is a manufacturer of the consumer goods category, and produces approximately 22,200,000 square feet in gross domestic product products. Wal.mart’s products are manufactured in the United States and in other countries that include Russia, China, South Korea, India and the United Kingdom. These companies also own the world-class global pharmaceutical and health services brands such as Intex Global
῿, ProPublica Health and Health Research, and the world’s leading public health and drug provider, including the World Intellectual Property Rights Holder (WIPR Holder) to fight against unfair practices worldwide. The company has an annual gross domestic product of $16.1 billion, up from $16.0 billion in fiscal 2014. Wal.mart’s global footprint is extensive ranging from offices at the U.S. Embassy, to distribution centers, to online retail, including locations in a number of locations in Asia, Australia, New Zealand, South Africa, China, and Australia and New Zealand. This new global presence in South America, Europe, and Asia is likely to provide a significant boost to a growing number of customers in South America. This position has some potential to reduce the number of jobs in that region. In addition to the global retail presence, Wal.mart’s financial sector is also well established. The company has an active active and growing workforce and is well-established in both Europe, Asia, and the South America region. Wal.mart’s management team consists of over 3,000 members operating in 20 countries. The company has a global footprint and a global staff of over 900, and the international workforce exceeds 600,000 worldwide. All its employees are global employees. Wal.mart’s strategic and personnel management policies and practices include strategic and personnel disclosure which protects individual employees from disclosure, disclosure of potential conflicts of interest and non-performance indicators. Wal.mart’s organizational structure is managed entirely by independent, high performance management and operational managers. The company’s mission and mission information is provided by a number of independent management committees and through the Company’s strategic and strategic information plan. This plan incorporates the values of the company’s strategic and strategic information and business plan and identifies its corporate and community plan of governance. Wal.mart’s financial resources range from corporate resources to global resources. Wal.mart’s financial position is based upon a broad portfolio of financial assets, including cash and non-cash instrument. The company also has a wide array of different financial information and information products ranging from the following categories:
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