Select one diversified energy company for analysis. This energy company is the focus of study and analysis on subsequent assignments. The diversified energy company must have a portfolio of different types of energy assets within an industry. A company like Duke Energy (electricity), which includes regulated utilities is the best type of selection.
Write an executive summary of no more than 300 words that describes the portfolio of assets of the company you have selected for the analysis.
Conduct an independent analysis of the diversified energy company you selected for the other assignment.
Write a paper of no more than 1,050 words that addresses the following points:
- Calculate estimates of the required rate of return on equity for the firm using both the capital asset pricing model and the standard DCF model. Attach the calculations and results to the essay portion of the paper.
- Explain any data smoothing or adjustment techniques needed to make the data and results representative of current financial conditions.
- How accurate do you feel these required return estimates are? Why?
- Do you think the estimates could be made more accurate by using a proxy group of several similar companies?
- How do market factors adjust these required returns for risk?
- Over time, how will these required returns be affected by changes in interest rates, inflation, performance of the economy, and returns on alternative investments?