Pioneer Petroleum

A detailed Summary of Pioneer Petroleum

Pioneer Petroleum, in the midst of restructuring their capital budgeting procedures, was debating over how their divisional cost of capital rates should be determined. Their two methods included a single cost corporate approach or a multiple divisional hurdle approach to capital. These rates were to be used in evaluating projects and allocating investment funds among divisions. The divisional rate would reflect the risks innate in each of the economic divisions where the company's principal operating subsidiaries worked. By working with this assumption, single rate supporters claim that all projects should be based on a single rate average, taken from each division. For example if the company's rate is 10% then every future project should be subject to this rate regardless of the sector.

Supporters of multiple discount rates had calculated these numbers for several periods and consistent

wer explaining the difference in the companies overall average cost of capital.

However it is our contention that single rate supporters were also vague in their methods of grouping. For example, it was unclear as to whether all environmental projects would have the same rate, or a rate according to its division. Or for that matter how would tankers be grouped under the single rate method. Would they be given their own division or under a separate division such as high risk? We believe, along with the multiple rate supporters, that single rates do in fact give high-risk divisions an advantage. The average cost of capital for low risk investments was found to be relatively high. However, we feel that because these low risks investments were being overlooked, a proper balance was not being maintained within the company. As evidence, Pioneer was significantly lacking in marketing and transportation investment compared with other

Some common words found in the essay are:
British Petroleum, Pioneer Petroleum, cost capital, single rate, average cost capital, rate supporters, average cost, single rate supporters, multiple rates, pioneer petroleum, multiple rate, Corporation Question, overall average cost, supporters single, capital rates, common stocks,

Approximate Word count = 635
Approximate Pages = 3 (250 words per page double spaced)

Category: Miscellaneous

join now Save Paper

Saved Paper

Save your papers so you can locate them quickly!

Newest Essays

Testimonials

"Thank You So Much!!! You have saved me once again!!!"
Jack M.
"With so many papers to chose from, I was able to get ideas to help me with all of my classes. Thank You!"
Brian P.
"I've used this site for the last 3 years to help me come up with ideas for my papers."
Sara J.
"I use this site every week to help me write my own papers!"
Rachel W.
"I love this site!!!"
Marie N.

Pioneer Petroleum

Related Essays

Professional Essays

Saved Paper

Newest Essays

Testimonials