1. Compute a separate estimate of the WACC for the E&P and R&M divisions. Again, make...

 

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1. Compute a separate estimate of the WACC for the E&P and R&M divisions. Again, make sure you explain how you arrive at your estimates. Does it make sense to use all comparable firms for the calculation of each of these costs of capital? Why? Why not? What is your selection process to choose the comparable companies? Should it be driven by internal opinions of Midland executives, or externally determined by industry experts and/or equity analysts? What are the main reasons for the estimates to differ from one another? 2. Calculate unlevered cost of capital (rA) for the Petrochemical division. How would you go about? Calculate the WACC for the Petrochemical division. 3. Why are the divisional cost of capital different? What explains the differences in the divisional WACC? What is (are) the main driver(s) of variation of WACC? What would you use as an upward bound (or as a benchmark) for the WACC? 1. Compute a separate estimate of the WACC for the E&P and R&M divisions. Again, make sure you explain how you arrive at your estimates. Does it make sense to use all comparable firms for the calculation of each of these costs of capital? Why? Why not? What is your selection process to choose the comparable companies? Should it be driven by internal opinions of Midland executives, or externally determined by industry experts and/or equity analysts? What are the main reasons for the estimates to differ from one another? 2. Calculate unlevered cost of capital (rA) for the Petrochemical division. How would you go about? Calculate the WACC for the Petrochemical division. 3. Why are the divisional cost of capital different? What explains the differences in the divisional WACC? What is (are) the main driver(s) of variation of WACC? What would you use as an upward bound (or as a benchmark) for the WACC?

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1 To compute separate estimates of the Weighted Average Cost of Capital WACC for the EP and RM divis... View the full answer