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In this project we were asked to analyze three companies in the oil and gas industry. Firstly, we studied the dividend history of each of the firms. Unlike many other industries, all of our firms paid dividends during the period 1989 to 1998. We came up with two methods of calculating the dividend growth rate. Firstly, using 1989 as the base year and relating all dividends back to this year and secondly, comparing the growth of dividends on a year-to-year basis (i.e. taking the dividend in1997, subtracting from it the dividend in 1996, and then dividing the difference by the dividend in 1996). We think that both of these methods are equally valid because they show different trends and patterns. Looking first at the year-by-year dividend calculations, some general trends can be observed, such as that all three companies had a positive average growth in dividends for the period. Simply, dividends actually went up rather than down. Growth rates for all three companies indicated an increasing trend till the year 1997 when they experienced a decline. In order to study the required rate of return for each companies stock, we used a geometric average of holding period returns for the past ten years.

CHEVRON CORP.

Regarding Investors Required Rate of Return ( IRR) we estimated that due to the upcoming merger of Exxon and Mobil, Chevron's IRR will increase to 22% compared to 20% which is the average for the past ten years. We also created a second rate of return, which will come into affect seven years from now in 2006, when we expect the market to stabilize after the effects of the merger. This rate will be lower than that of the first because the risk caused by the merger should have subsided by this time, thus we estimated it at about 17% which is close to but less than that of Mobil's at present. Another aspect that contributed to this decision was that if the rate were any lower investors would rather...