Pioneer Petroleum

Pioneer Petroleum Corporation Question #2 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 …

…in. We also feel that the company’s cost of capital should return at least what the investment in common stocks is. This neglect of investing in low risks projects has caused the companies cost of capital to be 80% lower than its return on common stocks. Furthermore, it is our contention, that without balances of low-risk investments, the company will not be able to compete in a time of substantial economic slow down. ------------------------------------------------------------------------ **Bibliography**