1. How are Mortensen\'s estimates of Midland\'s cost of capital used? How, if at

Question

1.      How are Mortensen's estimates of Midland's cost of capital used? How, if at all, should these anticipated uses affect the calculations?

2.      Calculate Midland's corporate WACC. Be prepared to defend your specific assumptions about the various inputs to the calculations. Is Midland's choice of EMRP appropriate? If not, what recommendations would you make and why?

3.      Compute a separate cost of capital for the E&P Marketing and Refining divisions. What causes them to differ from one another?

4.      How would you compute a cost of capital for the Petrochemical division?

5.      Should Midland compute a different WACC for each division, why or why not?

Explanation / Answer

1) The cost of capital is the minimum acceptable rate of return for new investments in the corporation. Estimates of Midland

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