What is the Cost of Equity and WACC for each division of Midland? i) Estemate as

Question

What is the Cost of Equity and WACC for each division of Midland?

i) Estemate asset(unlevered) beta for teh E&P and R&M divisions using the comparable firms

Balance Sheet Assets: 2005 2006 Cash & Cash equivalents 16,707 19,206 Restricted Cash 3,131 3,131 Notes Receivable 18,689 19,681 Inventory 6,338 7,286 Prepaid Expenses 2,218 2,226 Total Current Assets 47,083 51,528 Investments & Advances 30,140 34,205 Net Property, Plant & Equipment 156,630 167,350 Other Assets 10,818 9,294 Total Assets 244,671 262,378 Liabilities & Owners' Equity: Accounts Payable & Accrued Liabilities 24,562 26,576 Current Portion of Long Term Debt 26,534 20,767 Taxes Payable 5,723 5,462 Total Current Liabilities 56,819 52,805 Long Term Debt 82,414 81,078 Post Retirement Benefit Obligations 6,950 9,473 Accrued Liabilities 4,375 4,839 Deferred Taxes 14,197 14,179 Other Long Term Liabilities 2,423 2,725 Total Shareholders' Equity 77,493 97,280 Total Liabilities & Owners' Equity 244,671 262,378

Explanation / Answer

I can show you one example:

then based on that you can calculate-

Beta in exploration will come out as average of similar industries 1.15 Market rate of return 5% Risk free rate 4.54% Cost of equity = Rf+beta(Rf-Rm) 4.01% Weight of Equity 54% Equity cost (weighted) 2.17% Cost of Debt 6.14% Weight of Debt 46% Debt cost (weighted) 2.82% Total Cost (wacc) 4.99%

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