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Companies and Capped Liabilities

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Current legislation limits the amount of economic-related liabilities to be paid by a company on account of an oil spill to $75 million. A move to amend that legislation and raise the liability cap to $10 billion was blocked in the Senate because Big Petroleum, who is responsible for a recent spill, has given its word that it would cover the cost of all damages and cleanup costs deriving from a recent oil spill in an ecologically significant marine area that supports a thriving fisheries and recreation industry and is home to many endangered and threatened marine animals and waterfowl. Big Petroleum's chairman of the board made the statement after convening a special meeting of the board and studying videos of the damage taken by film crews.

It is estimated that the actual costs of cleanup and industry losses could even exceed the $10 billion proposed cap. Meanwhile, other oil companies involved in the oil spill have now gone to court invoking limits on their liability as provided by law.

As a stockholder in these companies, you are concerned about your investments in oil, as a dip in your stocks could ruin your retirement and that of other investors, including several pension plans that are heavily invested in oil. However, you are outraged that the companies are seeking to limit their liability as permitted by law because you think corporate citizenship demands these companies correct the damage from this disaster.

1. What is the justification behind the decision of the boards of directors of the oil companies seeking limitation on damages? Explain.

2. Is the board of directors of Big Petroleum committing a waste of corporate assets by its decision not to invoke the legal limitation of damages?

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1. The justification behind the decision of the boards of directors of oil companies seeking limitation on damages is that if there are no limits, very high damages may be set. These can lead to bankruptcy of companies and liquidation of companies that are important for the national economy. The purpose of the damages is to hurt the finances of the company as well as send a strong ...

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This posting gives you a step-by-step explanation of limitation on damages . The response also contains the sources used.

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(b) Equity

The market value of equity is by definition equal to the number of shares outstanding times the market price per share. Find out the number of shares outstanding and the recent price per share. Then multiply one by the other in order to find the market value of equity of your company. The market value of equity of your company is what is called 'Mkt Cap' (that is, Market Capitalization) that is market capitalization.

Once you have this information, prepare a paper (in APA format) with the following:

1. Compute the debt ratio of your company (total liabilities divided by the total liabilities plus equity) and the debt to equity ratio, (total liabilities divided by total equity). Also, show these two ratios for short-term liabilities only and for long-term liabilities only (instead of total liabilities use just short-term liabilities and long-term liabilities). Show all of your work and calculations.

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3. Compute the debt to equity ratios to two other companies in the same industry as your SLP company. Which of these three companies has the highest debt to equity ratio, and why do you think it chose to have a relatively high ratio? Which of these three companies has the lowest debt to equity ratio, and why do you think it chose to have a relatively lower ratio?

My company is Oakley which I know was bought out by another company in 2007.

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