LPT Inc. is an integrated oil company headquartered in Dallas, Texas. The company has three operating divisions: oil exploration and production (commonly referred to as E&P), pipelines, and refining. Historically, LPT did not spend a great deal of time thinking about the opportunity costs of capital for each of its divisions and used a company-wide weighted average cost of capital of 14 percent for all new capital investment projects. Recent changes in its businesses have made it abundantly clear to LPT's management that this is not a reasonable approach. For example, investors demand a much higher expected rate of return for exploration and production ventures than for pipeline investments. Although LPT's management agrees, in principle at least, that different operating divisions should face an opportunity cost of capital that reflects their individual risk characteristics, they are not in agreement about whether a move toward divisional costs of capital is a good idea based on practical considerations.
Required:
a. Pete Jennings is the chief operating officer for the E&P division, and he is concerned that going to a system of divisional costs of capital may restrain his ability to undertake very promising exploration opportunities. He argues that the firm really should be concerned about finding those opportunities that offer the highest possible rate of return on invested capital. Pete contends that using the firm's scarce capital to take on the most promising projects would lead to the greatest increase in shareholder value. Do you agree with Pete? Why or why not?
b. The pipeline division manager, Donna Selma, has long argued that charging her division the company-wide cost of capital of 14 percent severely penalizes her opportunities to increase shareholder value. Do you agree with Donna? Explain.
Answers: 1
Business, 22.06.2019 03:00
For each separate case below, follow the 3-step process for adjusting the prepaid asset account at december 31. step 1: determine what the current account balance equals. step 2: determine what the current account balance should equal. step 3: record the december 31 adjusting entry to get from step 1 to step 2. assume no other adjusting entries are made during the year. a. prepaid insurance. the prepaid insurance account has a $4,700 debit balance to start the year. a re- view of insurance policies and payments shows that $900 of unexpired insurance remains at year-end. b. prepaid insurance. the prepaid insurance account has a $5,890 debit balance at the start of the year. a review of insurance policies and payments shows $1,040 of insurance has expired by year-end. c.prepaidrent.onseptember1ofthecurrentyear,thecompanyprepaid$24,000 for 2 years of rentfor facilities being occupied that day. the company debited prepaid rent and credited cash for $24,000.
Answers: 3
Business, 22.06.2019 09:00
Asap describe three different expenses associated with restaurants. choose one of these expenses, and discuss how a manager could handle this expense.
Answers: 1
Business, 22.06.2019 20:20
Levine inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product. direct materials (9 pounds at $1.80 per pound) $16.20 direct labor (6 hours at $14.00 per hour) $84.00 during the month of april, the company manufactures 270 units and incurs the following actual costs. direct materials purchased and used (2,500 pounds) $5,000 direct labor (1,660 hours) $22,908 compute the total, price, and quantity variances for materials and labor.
Answers: 2
LPT Inc. is an integrated oil company headquartered in Dallas, Texas. The company has three operati...
Chemistry, 28.12.2019 22:31
Geography, 28.12.2019 22:31
Mathematics, 28.12.2019 22:31
Mathematics, 28.12.2019 22:31
History, 28.12.2019 22:31
Mathematics, 28.12.2019 22:31
Social Studies, 28.12.2019 22:31