Using a Single Corporate WACC for All Divisions in A Firm Case Study

1. What are some arguments in favor of using a single corporate WACC for all divisions in a firm? Do you agree with these arguments? Why or why not?

2. What are some arguments against using a single corporate WACC for all divisions in a firm? Do you agree with these arguments? Why or why not?

3.Based on the consolidated firm’s current capital structure described in Exhibit 5, what is Midland’s prevailing corporate WACC? How did you estimate the parameters for the WACC equation? What assumptions did you make?

4. The preliminary debt/value estimates reported in Table 1 can be interpreted as target debt/value ratios. According to this information, what is Midland’s corporate WACC under its target capital structure? How did you estimate this value? What assumptions did you make?

5. Based on the data provided in the case study, what is the target WACC for the Petrochemicals division? How did you compute this estimate? Note that the Petrochemicals division was not considered when Midland collected relevant information about comparable firms.