X005/14
X009/14
X010/14
X032/14
1.25
D/E
###
D/V
###
rf
Spread to Treasury
EMRP
4.66%
1.62%
5.00%
unlevered
0.92
levered
1.33
rd
6.28%
re
###
8.12%
WACC
Assumptions:
Midlands choice of Equity Market Risk Premium can be considered ok since it has be
consultaions with its professional advisers-primarily its bankers and auditors.Further
premium survey results too point at a lower rate.
DILSHAD JAMIL
GOYEENA GORAKHNATH
HARISH DEEPAK
SUPRIT R. SABAT
9771437402
8986874273
9470199400
8986874276
5%
Market Risk Premium can be considered ok since it has been taken after
sional advisers-primarily its bankers and auditors.Further market risk
point at a lower rate.
9771437402
8986874273
9470199400
8986874276
dilshad.jamil14e@iimranchi.ac.in
goyeena.gorakhnath14e@iimranchi.ac.in
harish.deepak14e@iimranchi.ac.in
suprit.sabatl14e@iimranchi.ac.in
Tax Rate
39.72%
E/V
57.80%
D/Eexpected
73.01%
Equations Used
levered = unlevered (1+(1-T)(D/V))
D/V + E/V = 1
rd = rf + Spread of Treasury
re = rf + levered(EMRP)
WACC = rd(D/V)(1-T) + re(E/V)
The 10-year risk-free rate seems more appropriate because Midlands investments are based primarily on i
assets.1-year period seems to be too small wheras 30-year period is too long a time in this case.
With a very low standard of error (based on the chart) and advisors, bankers, and investors covering the in
agreeing with 5% as an estimate Janet Mortensen decided to go for this rate
dilshad.jamil14e@iimranchi.ac.in
goyeena.gorakhnath14e@iimranchi.ac.in
harish.deepak14e@iimranchi.ac.in
suprit.sabatl14e@iimranchi.ac.in
ased on the chart) and advisors, bankers, and investors covering the industry
et Mortensen decided to go for this rate
1.150
39.80%
D/V
46.00%
rf
Spread to Treasury
EMRP
4.980%
1.60%
5.00%
unlevered
0.927
levered
1.404
rd
6.580%
re
12.00%
8.304%
WACC
Assumptions:
Tax Rate
E/V
(From Table 1)
D/Eexpected
(from Table 1)
(from Table 1)
Equations Used
(i.e of Exploration and Production without any debt)
D/V + E/V = 1
(Cost of debt)
rd = rf + Spread of Treasury
(Cost of equity)
(Weighted Average Cost of Capital)
re = rf + levered(EMRP)
5%
39.72%
54.00%
85.19%
quations Used
= unlevered (1+(1-T)(D/V))
+ E/V = 1
rf + Spread of Treasury
rf + levered(EMRP)
C = rd(D/V)(1-T) + re(E/V)
he 30-year risk-free rate seems more appropriate because Midland E&P's investmets are based
imarily on its energy reserves and long-lived assets which in this case may take years to
aterialize.
With a very low standard of error (based on the chart) and advisors, bankers, and investors
vering the industry agreeing with 5% as an estimate Janet Mortensen decided to go for this rate.
1.20
D/E
###
D/V
###
rf
Spread to Treasury
EMRP
4.66%
1.80%
5.00%
unlevered
1.07
levered
1.36
rd
6.46%
re
###
9.11%
WACC
Assumptions:
Tax Rate
(from Exhibit 5)
E/V
(From Table 1)
D/Eexpected
(From Table 1)
(From Table 1)
Equations Used
(i.e of Refining and Marketing without any
debt)
D/V + E/V = 1
(Cost of debt)
rd = rf + Spread of Treasury
(Cost of equity)
(Weighted Average Cost of Capital)
re = rf + levered(EMRP)
5%
###
###
###
ns Used
unlevered (1+(1-T)(D/V))
V = 1
Spread of Treasury
+ levered(EMRP)
rd(D/V)(1-T) + re(E/V)
ear risk-free rate seems more appropriate because Midlands investments are based primarily
ergy reserves and time required to capitalize on them
ery low standard of error (based on the chart) and advisors, bankers, and investors covering
try agreeing with 5% as an estimate Janet Mortensen decided to go for this rate
Petrochemicals
In order to get for Petrochemicals, we will need to take a weighted average of the thre
unlevered
Exploration and
Production
0.93
Refining and
Marketing
1.07
Petrochemicals
Net Consolidated
0.92
D/V
40.00%
WE&P
0.53
WR&M
0.36
WP
0.11
unlevered
0.40
levered
0.56
rd
6.01%
re
7.46%
5.92%
WACC
Assumptions
emicals, we will need to take a weighted average of the three divisions based on their proportion of assets and
Total Assets
140100
Tax Rate
93829
E/V
28450
D/Eexpected
262379
rf
(From Table 1)
Spread to Treasury
EMRP
Equations Used
D/V + E/V = 1
rd = rf + Spread of Treasury
re = rf + levered(EMRP)
(Cost of debt)
(Cost of equity)
(Weighted Average Cost of Capital)
5%
r proportion of assets and then solve for the only unknown value i.e unlevered for Petrochemicals
39.72%
60.00%
66.67%
(Calculated from the value of D/V and E/V ratios for the year 2007)
4.66%
(from Table 1)
1.35%
5.00%
(from Table 1)
Used
olidated) = (WE&P*unlevered(E&P)+WR&M*unlevered(R&M)+WP*unlevered(P))/(WE&P+WR&M+WP)
vered
(1+(1-T)(D/V))
= 1
read of Treasury
vered
(EMRP)
D/V)(1-T) + re(E/V)
risk-free rate seems more appropriate because Midlands investments are based primarily on
serves and time required to capitalize on them
low standard of error (based on the chart) and advisors, bankers, and investors covering the
eing with 5% as an estimate Janet Mortensen decided to go for this rate