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Category: Business and Industry

Date Submitted: 11/28/2012 01:05 PM

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Chevron is one of the largest integrated energy companies in the world. Headquartered in San Ramon, California, and conducting business in approximately 180 countries, the company is engaged in every aspect of the oil and natural gas industry, including exploration and production; refining, marketing and transportation; chemicals manufacturing and sales; geothermal and power generation.

1. From the calculated data, we have seen the difference between two of them. Based on our opinion, bankruptcy cost is the reason for Chevron to deviate from its optimal structure. The current capital structure is low leveraged, which means Chevron still has some space to issue debt to reduce its total cost of capital. It might also be a good choice to maintain current situation because the lower debt ratio, the lower the risk to go bankruptcy. If the market perceive high bankruptcy cost, the firms may lose sales and unable to attract business partners for risk-sharing projects because Chevron, they need spend a lot in researched and development as oil and natural gas can be something exhausted in the future. Further, Chevron can choose to move towards to its optimum as their primary assets are mostly tangible goods that can be liquidated without a great loss. Compare to Chevron, agency problem is the important issue to Netflix. On Netflix, it is strongly recommended for them to move toward optimum capital structure. Based on the data, they had been issuing too much debt and it put the company at the risk of going bankrupt. Netflix has increased their shareholder’s risk and split shareholder’s pizza to debt investor. Moreover, it will upgrade the bond rating from D to upper level.