ExxonMobil (XOM) is one of the half-dozen major oil companies in the world. The firm has four primary operating divisions (upstream, downstream, chemical, and global services) as well as a number of operating companies that it has acquired over the years. In 2009, ExxonMobil acquired XTO Energy for $41 billion. The XTO acquisition gave ExxonMobil a significant presence in the development of domestic unconventional natural gas resources, including the development of shale gas formations, which was booming at the time.

Assume that you have just been hired to be an analyst working for ExxonMobil's chief financial officer. Your first assignment is to look into the proper cost of capital for use in making corporate investments across the company's many business units.

b. If you were to evaluate divisional costs of capital, how would you go about estimating these costs of capital for ExxonMobil? Discuss how you would approach the problem in terms of how you would evaluate the weights to use various sources of capital as well as how you would estimate the costs of indivdual sources of capital for each division.(Select all that apply.)

A. However, the sources of financing used for any particular division will feed into the capital structure of the other divisions. So management should be aware of how a division's capital structure will affect all of the other divisions.

B. However, the sources of financing used for any particular division will feed into the overall capital structure of the firm. So management should be aware of how a division's capital structure will affect the firm as a whole.

C. One approach to estimate the cost of capital is to identify comparison firms with the same number of divisions. Firms operating with the same number of divsions are represented by the divisions at ExxonMobil. The appropriate measures for the cost of debt or equity financing for these firms can be used as an estimate for the cost of capital for the respective divisions at ExxonMobil.

D. If management at ExxonMobil has a target capital structure mix, that target mixture could be used to determine the cost of capital for other firms. The needs of each firm must be considered individually.

E. If management at ExxonMobil has a target capital structure mix, that target mixture could be used to determine the weights for the various sources of capital. The needs of each division must be considered individually.

F. One approach to estimate the costs of individual sources of capital is to identify pure play comparison firms. Firms operating in all of the individual business areas are represented by the divisions at ExxonMobil. The appropriate measures for the cost of debt or equity financing for these firms can be used as an estimate for the cost of capital for the some of the divisions at ExxonMobil.

G. If management at ExxonMobil has a target capital structure mix, that target mixture could be used to determine the weights for the various sources of capital. The needs of each division must be considered collectively.

H. One approach to estimate the costs of individual sources of capital is to identify pure play comparison firms. Firms operating in only one of the individual business areas are represented by the divisions at ExxonMobil. The appropriate measures for the cost of debt or equity financing for these firms can be used as an estimate for the cost of capital for the respective divisions at ExxonMobil.