MIDLAND ENERGY RESOURCES Balance S

Project: MIDLAND ENERGY RESOURCES

Analysis: Balance Sheet
Draft: N
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MIDLAND ENERGY RESOURCES Balance S

Assets: 2005 2006 Combined 2005 - 2006 Average

Cash & Cash equivalents 16,707 19,206
Restricted Cash 3,131 3,131
Notes Receivable 18,689 19,681
Inventory 6,338 7,286
Prepaid Expenses 2,218 2,226
Total Current Assets 47,083 51,528

Investments & Advances 30,140 34,205

Net Property, Plant & Equipment 156,630 167,350
Other Assets 10,818 9,294
Total Assets 244,671 262,378

Liabilities & Owners' Equity:

Accounts Payable & Accrued Liabilities 24,562 26,576 51,137 25,569
Current Portion of Long Term Debt 26,534 20,767 47,301 23,650
Taxes Payable 5,723 5,462 11,185 5,593
Total Current Liabilities 56,819 52,805 109,624 54,812
0 0
Long Term Debt 82,414 81,078 163,493 81,746
Post Retirement Benefit Obligations 6,950 9,473 16,423 8,211
Accrued Liabilities 4,375 4,839 9,214 4,607
Deferred Taxes 14,197 14,179 28,376 14,188
Other Long Term Liabilities 2,423 2,725 5,148 2,574
0 0
Total Shareholders' Equity 77,493 97,280 174,773 87,387 Average Debt = 166,138
Total Liabilities & Owners' Equity 244,671 262,378 507,049 253,525 Average Equity = 87,387
34.47% Average Value = 253,525
Debt/Value = 65.53%
Equity/Value= 34.47%
Debt/Equity = 190.12%
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Balance Sheet
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Balance Sheet
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Midland Case Study
E&P Division WACC
Step 1)

Step 2) Calculate average unlevered beta

Step 3) relever beta

Step 4)

CAPM) calculate cost of equity

Step 5) Using cost of equity and cost of debt to calculate WACC
om Comp analysis and corresponding D and Equity levels
Beta 1.25
D/V 37.2%
E/V 62.8%
D/E 59.3%

bD Assumed to be 0

T= 39.73%

bU 0.92

Exploration and Production Targeted D/E

Targeted D/V = 0.422

Targeted D/E = 0.7301038062

bE 1.33
riskfree rate from 10-year T Note

re = rf + be ( rm - rf )

WACC=[(D/V)(1-T)(rD)

D/V 42.20%
E/V 57.80%
Cost of Equity 11.29%
Cost of Debt 6.28%
Tax Rate 39.73%
WACC of Midland Corp. = 8.1234%
 bU =
( 1- T ) wDb D + wE b E
( 1- T ) wD + wE

geted D/E

meaning E/V = 0.578

æ Dö
b E = bU + ( 1- T ) ç ÷ ( bU - b D )
èEø
 4.660%

D/V)(1-T)(rD)]+[(E/V)(rE)]
 Average

0.9209 Bu

- bD )
 Beta 1.33
MRP 5.0% Chose 5 perce
EMRP and con
there is not su
of experts
Cost of Equity 11.29% rE

10-year treasury note 4.66%

Spread to Treasury 1.62%
Cost of Debt 6.28% rD
hose 5 percent because a group of experts analyzed the
MRP and concluded 5 % was appropriate - furthermore
here is not sufficient evidence to contradict the opinoins'
f experts
Midland Case Study
E&P Division WACC
Step 1) Jackson Energy Inc Wide Palin Petroleum Corsicana Energy Corp. Worthington Petroleum Average
Beta 0.89 1.21 1.11 1.39
D/V 10.1% 46.1% 13.2% 32.19%
E/V 89.9% 53.9% 86.8% 67.81%
D/E 11.2% 85.4% 15.2% 47.47%

bD Assumed to be 0
( 1- T ) wDb D + wE bE
bU =
T= 39.73%
( 1- T ) wD + wE
Step 2) Calculate average unlevered beta bU 0.83 0.80 1.02 1.08 0.93 Bu
Step 3) relever beta
Exploration and Production Targeted D/E

Targeted D/V = 0.46meaning E/V = 0.54

Targeted D/E = 0.851
æ Dö
Step 4) bE 1.41 b E = bU + ( 1- T ) ç ÷ ( bU - b D )
èEø

CAPM) calculate cost of equity

riskfree rate from 10-year T Note 4.660% Beta 1.41
MRP 5.0% Chose 5 percent because a group of expert
EMRP and concluded 5 % was appropriate
there is not sufficient evidence to contradic

re = rf + be ( rm - rf )
opinions
Cost of Equity 11.71% rE

Step 5) Using cost of equity and cost of debt to calculate WACC 10-year treasury note 4.66%
WACC=[(D/V)(1-T)(rD)]+[(E/V)(rE)]
MIDLAND ENERGY RESOURCES Income Statement

Project: MIDLAND ENERGY RESOURCES

Analysis: Income Statement
Draft: N
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MIDLAND ENERGY RESOURCES Income Statement
Operating Results

Operating Results: 2004 2005 2006

Operating Revenues 201,425 249,246 248,518
Plus: Other Income 1,239 2,817 3,524
Total Revenue & Other Income 202,664 252,062 252,042
Less: Crude Oil & Product Purchases 94,672 125,949 124,131
Less: Production & Manufacturing 15,793 18,237 20,079
Less: Selling, General & Administrative 9,417 9,793 9,706
Less: Depreciation & Depletion 6,642 6,972 7,763
Less: Exploration Expense 747 656 803
Less: Sales Based Taxes 18,539 20,905 20,659
Less: Other Taxes & Duties 27,849 28,257 26,658
Operating Income 29,005 41,294 42,243
Less: Interest Expense 10,568 8,028 11,081
Less: Other Non-Operating Expenses 528 543 715
Income Before Taxes 17,910 32,723 30,447 81,080
Less: Taxes 7,414 12,830 11,747 31,991
Net Income 10,496 19,893 18,701
Tax % 41.40% 39.21% 38.58% 39.728% Average tax rate over three years
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