CORPORATE FINANCES

ASSIGNMENT#: 2

ID FULL NAME

WASIQ IFTHIKHAR

SAADAN UL HAQ

ASAD RIAZ

ADEEL

SUBMITTED TO: MS GUL RUKH

DATE OF SUBMISSION:
2ND MARCH, 2019
SESSION OF SUBMISSION:

FOR GRADING:
COMMENTS: MARKS SECURED:
 Exxon Mobil Corporation

Vision
Exxon Mobil Corporation is committed to being the world's premier petroleum and
petrochemical company. To that end, we must continuously achieve superior financial and
operating results while simultaneously adhering to high ethical standards.

Mission

Energy is fundamental to the world economies. Improving living standards around the global
requires affordable, reliable energy. Providing this energy is an enormous challenge one that
must be met practically safely, and in an environmentally and socially responsible manner.

History
Exxon Mobil Corporation, doing business as ExxonMobil, is an American multinational oil
and gas corporation headquartered in Texas. It is the largest direct descendant of John D.
Rockefeller's Standard Oil Company, and was formed on November 30, 1999 by the merger
of Exxon (formerly the Standard Oil Company of New Jersey) and Mobil (formerly the Standard
Oil Company of New York).

The world's 10th largest company by revenue, ExxonMobil from 1996 to 2017 varied from
the first to sixth largest publicly traded company by market capitalization. The company was
ranked ninth globally in the Forbes Global 2000 list in 2016. ExxonMobil was the second most
profitable company in the Fortune 500 in 2014.

ExxonMobil is the largest of the world's Big Oil companies, or super majors, with daily
production of 3.921 million BOE (barrels of oil equivalent); but significantly smaller than a
number of national companies. In 2008, this was approximately 3 percent of world production,
which is less than several of the largest state-owned petroleum companies. When ranked by oil
and gas reserves, it is 14th in the world—with less than 1 percent of the total. ExxonMobil's
reserves were 20 billion BOE at the end of 2016 and the 2007 rates of production were expected
to last more than 14 years. With 37 oil refineries in 21 countries constituting a combined daily
refining capacity of 6.3 million barrels (1,000,000 m3), ExxonMobil is the largest refiner in the
world.
Stock price: US$85.19
CEO: Darren Woods
Headquarters: Texas, United States
Revenue: 237.1 billion USD
Number of employees: 69,600

Financial Data

Value of equity = $360085.580 million

Value of debt = $48549 million

Total value = value of debt + value of equity

Total value = 48549 + 360085.580

Total value =$408634.58

WACC (Weighted average cost of capital)

Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which
each category of capital is respectively weighted.

All sources of capital, including common stock, preferred stock, bonds and any other long-term
debt, are included in a WACC calculation. A firm’s WACC increases as the beta and rate of
return on equity increase, because an increase in WACC denotes a decrease in valuation and an
increase in risk.

WACC= WeKe + WdKd (1-t) +WpKp

Ke = cost of equity.
KD = cost of debt.
E = market value of the firm’s equity.
D = market value of the firm’s debt.
V=E+D
E/V = percentage of financing that is equity.
D/V = percentage of financing that is debt.
Tc = corporate tax rate.

Weight of equity = E / (E+D)

Weight of equity = 360085.580 / (360085.580 + 42549)
Weight of equity = 0.894

Weight of debt = D / (E+D)

Weight of debt = 42549 / (360085.580 + 42549)
Weight of debt = 0.10567

Cost of equity
There are two ways a company can raise capital: debt or equity. Debt is cheap, but the company
must pay it back. Equity does not need repaid, but it generally costs more than debt due to the tax
advantages of interest payments. Even though the cost of equity is higher than debt, equity
generally provides a higher rate of return than debt. Analysts calculate the cost of equity with the
dividend growth model and the capital asset pricing model.
Risk free rate from the given data is 0.03115, Market premium is 6% and beta is 0.8.
But here we use CAPM.

Formula of CAPM
Ra = Expected return on a security
Rrf = Risk-free rate
Ba = Beta of the security
Rm = Expected return on market

Risk Premium = (Rm – Rrf)

Risk Free Rate + Beta [Market Return Premium]
KE= 0.0315+ 0.81(0.06)
KE= 8.01%

Cost of debt
Cost of debt is the interest a company pays on its borrowings. It is expressed as a percentage rate.
In addition, cost of debt can be calculated as a before-tax rate or an after-tax rate. Because
interest is deductible for income taxes, the cost of debt is usually expressed as an after-tax rate.
1.4125%

WACC = WeKe + WdKd (1-t) +WpKp

=360085.580 (8.01) + (0.10567)( 1.4125%) (1-5.69%)+(0)

WACC = 7.32%

Explanation
Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the
company to raise the capital needed for that investment is earning excess returns. A firm that
expects to continue generating positive excess returns on new investments in the future will see
its value increase as growth increases, whereas a firm that earns returns that do not match up to
its cost of capital will destroy value as it grows.