Midland Energy: The Case of Project Finance at Midland Energy Resources
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Throughout its existence, our dedicated team has been performing quite well. It has performed through the analysis surrounding the issues related to capital for midland energy Resources Corporation. From our research, we have obtained the following results:
Mrs. Janet Mortsen, the Senior vice president of project finance at midland energy resources, has estimated the cost of capital for Midland Oil, which includes a variety of reasons such as financial accounting, capital budgeting, estimates for stock repurchase and the M&A opportunities. Moreover, Midland Energy Corporation heavily relies on the cost of capital to deliver on its financial investments as well as investment policies that the Board of directors has set out. Finally, the company uses the cost of capital in relation to the anticipated growth and forecast demand. In explanation, if the department responsible for forecasting foresees an increase in the sale of the organization’s resources, then the senior vice president can use the cost of capital to determine properly whether it is financially appropriate to invest in the company and the project to support the demand.
If at any case Ms. Mortensen overestimate the cost of capital for the organization, then the results will be that Midland will miss out on the opportunities for investment. In addition, it will undervalue the investment it has at hand. Moreover, it is possible for the company’s shareholders to see a lower rate of return on their investments.
If in any case the senior vice president understates the cost of capital, then Midland will engage in an investment with potential drawbacks, which means that the company will be overvalued. In this case, shareholders in the company will possibly see the inflation of returns based on such an approach.
On the basis of our calculations, our team has found that the firm-wide WACC for Midland Energy is 8.48%. Our team has further made assumptions in arriving at this figure, in which we have provided the assumption that can be found starting on cell number F25 on the Exhibit 6tab. The 5% EMRP was specifically derived from the case study context, while the free-risk rate, valued at 4.98%, was derived from the yield of the 30 year treasury from Table number 1. This is the most stable data. In addition, the tax rate was 40% after calculations based on the average of the total amounts of the taxes the company has paid out in the period 2004-2006. This is to be found on exhibit number 1.
Based on these calculations, it is clear that the company has not undervalued or overestimated its cost of capital over the last 8 years, which further indicates that the calculations by the office of the senior vice president have a significant degree of accuracy. In addition, it is worth noting that the services rendered to the company for the last eight years have reflected the stability of the data, and further reflects the reasons why the company has not had any major hurdles with the stakeholders. In fact, shareholders in the company have been comfortable with their investments, while the company has attracted a significant number of more investors.
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