2017-01-0015

FMG
312983964.xlsx

Midland Energy Resources, Inc.: Cost of Capital

Key Results
WACC
8.51%
8.75%
9.60%
3.86%

Midland
Exploration and Production
Refining and Marketing
Petrochemicals

A
0.79
0.84
0.98
-0.14

E
1.36
1.56
1.41
-0.23

WACC for Midland:

Equity Beta
Current from Exh 5

E
D/E
E/V
D/V

1.25
59.30%
62.80%
37.20%

Tax Rate

38.58%

Formula: (E/V)*E
Now for Target capital Structure
again
New beta E

Cost of Equity

rf
MRP
re

Cost of Debt
Weightage Average Cost of Capital

rd
WACC

0.785

1.36 using E/V=57.8%

4.98%
5.00%
11.77%
6.60%
8.51%

WACC for Exploration and Production:

Cost of Equity

rf
MRP
re

Cost of Debt
Weightage Average Cost of Capital

rd
WACC

4.98%
5.00%
12.76%
6.58%
8.75%

Calculations for A
Jackson Energy, Inc.

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D/E
11.20%
A

D/E
11.2/100
0.80

V
111.2

E/V
89.93%

Wide plain petroleum

D/E
85.40%
A

D/E
85.4/100
0.65

V
185.4

E/V
53.94%

Corsicana Energy Corp

D/E
15.20%
A

D/E
15.2/100
0.96

V
115.2

E/V
86.81%

Worthington Petroleum
D/E
47.50%
A

D/E
47.5/100
0.94

V
147.5

E/V
67.80%

0.84
Unlevered Average A of Industry
E

1.56

WACC for Refining and Marketing:

Cost of Equity

rf
MRP
re

Cost of Debt
Weightage Average Cost of Capital

rd
WACC

4.98%
5.00%
12.05%
6.78%
9.60%

Calculations for A
Bexar Energy, Inc
D/E
10.30%
A

D/E
10.3/100
1.54

V
110.3

E/V
90.66%

D/E
19.40%

D/E
19.4/100

V
119.4

E/V
83.75%

Kirk Corp

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0.79

D/E
20.90%
A

D/E
20.9/100
1.47

V
120.9

E/V
82.71%

Petrarch Fuel services

D/E
-12.00%
A

D/E
-12/100
0.27

V
88

E/V
113.64%

Arkana Petroleum Corp

D/E
32.30%
A

D/E
32.3/100
0.94

V
132.3

E/V
75.59%

Beaumont Energy, Inc.

D/E
20.60%
A

D/E
20.6/100
0.86

V
120.6

E/V
82.92%

Dameron Fuel Services

D/E
50.30%
A

D/E
50.3/100
0.94

V
150.3

E/V
66.53%

white point energy

0.98
Unlevered Average A of Industry
E

1.41

WACC for Petrochemicals:

We will calculate the A of Petrochemicals divisions by using the equation:
Midland
A

0.785
A of Petrochemicals

Division
E&P
R&M
Petrochemicals

E&P
Wa*A

R&M
Wa*A

0.45

0.35

-0.136
Calc for Asset Weights
Assets
140,100 Wa
93,829 Wa
28,450 Wa

0.53
0.36
0.11

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Total Midland
Target capital Structure From Table 1
D
40.00%

262,379

E
60.00%

-0.23

Cost of Equity

rf
MRP
re

4.98%
5.00%
3.85%

Cost of Debt
Weightage Average Cost of Capital

rd
WACC

6.33%
3.86%

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re
11.77%
12.76%
12.05%
3.85%

for Midland:

Target capital Structure From Table 1

D
E
42.20%
57.80%
For Tax
Income before taxes
Tax
Tax rate

30,447
11,747
38.58%

Yield to maturity for 30-year US bond

Debt payment spread to Treasury

4.98%
1.62%

ration and Production:

Target capital Structure From Table 1
D
E
46.00%
54.00%
For Tax
Income before taxes
Tax
Tax rate

Yield to maturity for 30-year US bond

Debt payment spread to Treasury

30447
11747
38.58%
rf

4.98%
1.60%

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D/V
10.07%

E
0.89

D/V
46.06%

E
1.21

D/V
13.19%

E
1.11

D/V
32.20%

E
1.39

ining and Marketing:

Target capital Structure From Table 1
D
E
31.00%
69.00%
For Tax
Income before taxes
Tax
Tax rate

30447
11747
38.58%

Yield to maturity for 30-year US bond

Debt payment spread to Treasury

D/V
9.34%

E
1.7

D/V
16.25%

E
0.94

rf

4.98%
1.80%

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D/V
17.29%

E
1.78

D/V
-13.64%

E
0.24

D/V
24.41%

E
1.25

D/V
17.08%

E
1.04

D/V
33.47%

E
1.42

Petrochemicals:

Petrochemicals
Wa*A
0.11*A

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