Case | HBS Case Collection | June 2009

Midland Energy Resources, Inc.: Cost of Capital

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: Cash flow; capital structure; valuation; Risk assessment; Risk and Uncertainty; Risk Management; Cost of Capital; Cash Flow; Capital Structure; Valuation; Capital Budgeting; Energy Industry;

Citation:

Luehrman, Timothy A., and Joel L. Heilprin. "Midland Energy Resources, Inc.: Cost of Capital." Harvard Business School Brief Case 094-129, June 2009.