п»їTO: VEFA TARHAN, SPECIAL TOPICS IN FINANCE
VIA: MAHMUT MACIT, AHMET KARIAVA ATIK, CAN KORKMAZ
TIME: NOVEMBER four, 2014
CASE: PIONEER PETROLEUM CORPORATION
Summary of the Company
Leader Petroleum Company established in 1924 and operating in petrol refining, pipeline transportation, and industrial substance fields. Company uses weighted-average cost of capital (WACC) as being a discount rate to price cut future cash flows that generate coming from possible jobs. According to net present values of such possible projects management chooses to invest or perhaps not. WACC represents the minimum charge of go back from the assets to satisfy the two debt-holders (bondholders) and investors. Since these kinds of investments happen to be forward-looking, organization should calculate weights in accordance to market values not with book values. Pertaining to the shareholders' perspective, expense of capital procedures the rate which the investors expect from the firm and this will depend on how that they value the company's securities and this value depends on the future profits and cash flows, not on accounting history. Pertaining to the debt-holders' perspective, business would need to increase new capital to financial the new projects and assets and it should be in marketplace terms. As well same to get bondholders, they expect an excellent return based on marketplace values with their securities seeing that company should definitely weights expense of equity and cost of debt in marketplace values pertaining to the WACC calculation. Also the reasons to get market value weights, company will need to use focus on capital structure for its WACC. Investors enter into long term projects in order to get reap the benefits of future funds flows plus they determine all their required level of return by considering firm's targeted capital structure. In most cases, current capital framework may not reflect the level expected to prevail in the life of business.
WACC of Pioneer Petroleum
Company uses two alternative approaches to calculate their WACC. First one is a solitary cut-off rate, which symbolizes the firm-wide WACC. The...