Questions for Midland Energy:

1. What is Midland’s corporate WACC? Be careful to note and defend the source for all of your
inputs, e.g. whether you use current or target capital structure, how you measure the cost of debt,
etc.

2. What is the WACC for the E&P and M&R divisions? Again, be careful to note and defend
specific assumptions.

3. What is the WACC for the Petrochemicals division? How can you estimate its cost of equity
without publicly traded comparables?

4. Explain why Midlands should or should not use a single corporate cost of capital for each of
its divisions. Think about what types of projects will be accepted under a single cost of capital
versus under different division costs of capital.

Notes
• You will need use a debt beta for Midland as a whole, for the various divisions, and for the
comparables in order to find the various costs of capital. However, you have incomplete and
contradictory information for finding the debt betas in the case. You can assume that the debt
betas are zero for the purposes of this case.