Midland Energy Resources Essay

4066 Words17 Pages
University of Waterloo Midland Energy Resources Memo Class: Section 2 – 1 to 2:20 PM MEMO Client: Midland Energy Resources Inc. Subject: Determine correct estimates of firm-wide and departmental WACCs Dear Ms. Janet Mortensen, Upon evaluating Midland’s historical, present and future investments, I have proposed a valuation method to determine the quality of these investments using the Weighted Average Cost of Capital. My analysis offers appropriate recommendations for Midland Energy Resources to make future capital budgeting decisions pertaining to two of its divisions: Exploration and Productions as well as Refining and Marketing. The estimates of WACC can also produce significant value in the analysis of financial accounting, performance assessment, M&A proposals, and stock repurchase opportunities and is a necessary basis for predicting the expected growth and forecasted demand of the company. Thus, it is paramount that an accurate and fair representation of the WACC for Midland prepared to correctly assess investment opportunities in the US and Foreign markets. Corporate WACC To summarize, the WACC is the minimum return that an investment must earn to satisfy stakeholders, specifically debt and equity holders. In order to ascertain such returns, investments are projected for future earnings or cash flow and discounted by the WACC to accommodate for the Time Value of Money. As stated before, the WACC can be used to evaluate new investment opportunities but it also can aid in comparing Midland to competing companies within the industry. When comparing to an industry average, a higher WACC means that the various debt and equity holders view Midland as being more risky than its competitors and thus these stakeholders are compensated for this risk through a higher return. The reverse also holds true. Additionally, the WACC can also be

More about Midland Energy Resources Essay

Open Document