Read âMidland Energy Resources, Inc.: Cost of Capitalâ and answer the following questions (One writeup per group is due in class on Wednesday, September 11):
1. How are Mortensenâs estimates of Midlandâs cost of capital used?
2. Calculate Midlandâs corporate WACC. Is Midlandâs choice of Equity Market Risk Premium (EMRP) appropriate? If not, what recommendations would you make and why?
3. Should Midland use a single corporate hurdle rate for evaluating investment opportunities in all of its divisions? Why or why not?
4. Compute a separate cost of capital for the E&P and Marketing & Refining businesses. What causes them to differ from one another?
5. Compute a cost of capital for the Petrochemical division.