GROUP 3 DAVID, OSVALD, RONALD, TJAHJO

Pioneer Petroleum was formed in 1924 operating in the oil refining, pipeline transportation and industrial chemical fields. In 1985, it was restructed to hydrocarbonsbased company, concentrating on oil, gas, coal and petrochemicals. One of the lowest cost refiners on the West Coast and has an extensive West Coast marketing network.

Pioneer is one of the primary producers of Alaskan crude and provided 60% of Pioneers domestic petroleum liquids production. Pioneers Alaskan crude production provides all the crude oil for its West Coast refining and marketing operation.

The Management and the board critical problems in July 1991 was the determination of a minimum acceptable rate of return on new capital investment. Review of the controversy between using single or multiple minimum acceptable cutoff rates.

The divisional rate would reflect the risk inherent in each of economic industries The divisional cost of capital calculated in three steps

Second

Estimate of the usual debt and equity proportions of independent firms

The cost of debt and equity given these proportions and sectors would be estimated in accordance with the company in estimating its own cost of capital

Costs and proportions combined to determine the weigthed average cost of capital, or minimum acceptable rate of return, for net present value discounting purposes in each sector

First

Third

In 1990 :
Debt : 12% (Assuming continuation of its debt policy and A rating) 34 % Tax rate, represented a 7,9% after tax cost Earnings per share estimated at $6,15 Market price of $63, cost of equity had been set at 10%. In the next five years there will be additional investment $3 billion for Clean Air Act amendments and the California Air Resources Boards regulations.