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

EXXONMOBIL

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, including  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.  Would you recommend that ExxonMobil use a single company-wide cost of  capital for analyzing capital expenditures in all its business units?  Why or why not? 

b. 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.

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