Case | 2009

Midland Energy Resources, Inc.: Cost of Capital: Brief Case No. 4129.

by Timothy A. Luehrman and Joel L. Heilprin

Abstract

The senior vice president of project finance for a global oil and gas company must determine the weighted average cost of capital for the company as a whole and each of its divisions as part of the annual capital budgeting process. The case uses comparable companies to estimate asset betas for each operating division, and employs the Capital Asset Pricing Model to determine the cost of equity. Students are required to un-lever and re-lever betas and, choose an appropriate risk-free rate, and compute costs of debt and equity.

Keywords: Capital Budgeting; Cost of Capital; Energy Industry;

Citation:

Luehrman, Timothy A., and Joel L. Heilprin. "Midland Energy Resources, Inc.: Cost of Capital: Brief Case No. 4129." Watertown, MA: Harvard Business Publishing Case, 2009.