Calculate the WACC for the Petrochemicals Division. Think of the same issues you considered for the Corporate WACC.
Calculate the WACC
Once you have read the case, prepare a written case analysis (5 to 8 pages long in Word or no more than 10 PowerPoint Slides).
The case analysis should do the following:
- Describe Midland, its capital planning model and Janet Mortensen’s role in the case.
- Briefly explain the meaning of the following concepts: cost of capital, WACC, and CAPM.
- Address what you use “cost of capital” to evaluate. How are Mortensen’s estimates used at Midland?
- Compute Midland’s Corporate WACC. Be prepared to defend it and to discuss cost of debt and cost of equity.
- Answer: should Midland compute different WACC for each division? Why or why not?
- Answer: if you were to compute a WACC for each division, how can we get asset betas for divisions? How should comps be selected?
- Calculate the WACC for the Petrochemicals Division. Think of the same issues you considered for the Corporate WACC.
Success in your analysis will be measured based on the following criteria: (1) quality of case analysis and (2) clarity and cohesiveness of written work specifically in response to the 7 items posted above.