Reference no: EM131426012
(Divisional costs of capital and investment decisions?) Belton Oil and Gas Inc. is a? Houston-based independent oil and gas firm. In the past? Belton's managers have used a single firmwide cost of capital of 10 percent to evaluate new investments. ? However, the firm has long recognized that its exploration and production division is significantly more risky than the pipeline and transportation division. In? fact, comparable firms to? Belton's E&P division have equity betas of about 1.6 ?, whereas distribution companies typically have equity betas of only 0.7 . Given the importance of getting the cost of capital estimate as close to correct as? possible, the? firm's chief financial officer has asked you to prepare cost of capital estimates for each of the two divisions. The requisite information needed to accomplish your task is contained? here:
The cost of debt financing is 8 percent before taxes of 33 percent. ? However, if the? E&P division were to borrow based on its projects? alone, the cost of debt would probably be 9.8 ?percent, and the pipeline division could borrow at 6.2 percent. You may assume these costs of debt are after any flotation costs the firm might incur.
The? risk-free rate of interest on? long-term U.S. Treasury bonds is currently 4.3 ?percent, and the? market-risk premium has averaged 6.6 percent over the past several years.
The? E&P division adheres to a target debt ratio of 40 ?percent, whereas the pipeline division utilizes 70 percent borrowed funds.
The firm has sufficient internally generated funds such that no new stock will have to be sold to raise equity financing.
a. What is the divisional cost of capital for the? E&P division?
b. What is the divisional cost of capital for the pipeline? division?
Market structures-break-even and cost management
: Market Structures, Break-Even, and Cost Management" Please respond to at leas two of the following: • From past Katrina Candies scenarios, determine what their appropriate market structure is. Cite at least four (4) defining characteristics that have..
|
Two probability distributions for sales
: Consider the following two probability distributions for sales: Graph the two distributions shown in table. What are the expected sales for the two probability distributions? Calculate the variance and standard deviation for both distributions. Which..
|
Suppose that initially the quantity demanded for good
: Suppose that initially the quantity demanded for good X was 98 units per week. When incomes rise by 5% quantity demanded becomes 102 units per week. Use the midpoint method to calculate the income elasticity of demand for good X. What type of good is..
|
List the four components of gross domestic product
: List the four components of Gross Domestic Product(GDP) and provide an example of each. Explain how each item affects you and the way that you live today should include an introduction, a body with at least two fully developed paragraphs, and a concl..
|
Divisional costs of capital and investment decisions
: (Divisional costs of capital and investment decisions?) Belton Oil and Gas Inc. is a? Houston-based independent oil and gas firm. In the past? Belton's managers have used a single firmwide cost of capital of 10 percent to evaluate new investments. Wh..
|
Discuss what economic theory predicts will happen
: From an economic standpoint, evaluate the effect of a minimum wage on the market for low-wage labor. Include the following: Discuss what economic theory predicts will happen. Draw a supply and demand graph illustrating the effect of a minimum wage.
|
The monopolist charges the highest possible price
: Explain why you agree or disagree with the following statements: “ All monopolies are created by the government.” “ The monopolist charges the highest possible price.” “ The monopolist never takes a loss.”
|
Calculate total revenue and marginal revenue
: Use the following demand schedule for a monopolist to calculate total revenue and marginal revenue. For each price, indicate whether demand is elastic, unit elastic, or inelastic. Using the data from the demand schedule, graph the demand curve, the m..
|
Estimate and incorporate the uncertainties of inflation
: How should a firm estimate and incorporate the uncertainties of inflation/deflation into its overall practices (for example a firm must make long term investment to survive in the long term, so how should it make this decision)?
|