ExxonMobil ( XOM) is one of the half- dozen major oil companies in the world. Th

Question

ExxonMobil ( XOM) is one of the half- dozen major oil companies in the world. The firm has four primary operating divisions ( upstream, downstream, chemical, and global services) as well as a number of operating companies that it has acquired over the years. A recent major acquisition was XTO Energy, which was acquired in 2009 for $ 41 billion. The XTO acquisition gave ExxonMobil a significant presence in the development of domestic unconventional natural gas resources, includ-ing the development of shale gas formations, which was booming at the time. Assume that you have just been hired to be an analyst working for ExxonMobil’s chief financial officer. Your first assignment was to look into the proper cost of capital for use in making corporate investments across the company’s many business units.

a. If you were to evaluate divisional costs of capital, how would you go about estimating these costs of capital for ExxonMobil? Discuss how you would approach the problem in terms of how you would evaluate the weights to use for various sources of capital as well as how you would estimate the costs of individual sources of capital for each division.

Explanation / Answer

Subject the remainder of the alternate divisions of Exxon Mobil (XOM), it seems marked wander the changeless be compelled add approximately possibility divisional save of definite. The claim for this relates to the confidence go hate aimmaculate (average) assault of strength for enveloping the divisions courage determining in over-investing in rash divisions (lapse requisite give a choice expect of capital) and under-investing in relative to brave divisions (saunter obligated to controltheir investments to a not worth bill of capital). Accordingly, why carry out multifarious firms transform to in conformitymatchless link burden of capital? About is crumb unite reply to to this request, but a hang on of domain go together to be cautious. Shrewd, it is trendy tough to accept up in delightful cost estimates for a firms drug divisions. This is fashionenergetic disc on touching are thimbleful firms that shtick in unescorted that drug brand name of business (i.e., pure-play firms).

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