Cost of Capital - Encana Corp
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EnCana Corporation
-Cost of Capital
Nabil Naouli Yong Peng Ahmed Alenazi Raj Kancharapu
Table of Contents
1. Introduction 2
2. History 2
a. Top Competitors 4
b. Major Product and Services 5
c. SWOT Analysis 5
3. Calculating Cost of Capital 6
a. Calculating Cost of Equity 7
i. Risk free rate 7 ii. Market Risk Premium 8 iii. Beta 8
b. Calculating Cost of Debt 9
c. Weighted Average Cost of Capital ( WACC ) 10
d. WACC- EnCana Corp. 2010 12
4. Discussion Questions & Summary 12
a. Hurdel Rate 12
b. Retained Earnings 13
c. Depreciation & Deferred Taxes 14
d. Summary: 14
5. References 15
Introduction
The case involves calculating the cost of capital for EnCana Corporation. The analysts in the case discussed about the use of several models and the components of the models to determine the cost of capital from various sources that EnCana uses. Financial statements for 2005 (Balance sheet and Income Statement as of December 31, 2005) were provided. In addition to this data, EnCana’s schedule of debt, selected data (closing stock price, EPS, Dividends per share, P/E ratio, Dividend yield and Total return) on EnCana’s common stock from 2002 to 2005 and yields on long-term government bonds from 1980 to 2005 was also provided.
History
EnCana Corporation is one of North America's largest natural gas producers, with about 95 percent of its production being natural gas. Its strategy is to be a natural gas pure-play company focused on the development of unconventional resources. The company produced 1.1 trillion cubic feet of natural gas in 2009. The company’s oil sands growth profile was one of the most aggressive in North America, with an additional 500 MBD (millions of barrels per day) of oil sands bitumen production expected by 2015.
EnCana was formed in 2002 with the merger of Pan Canadian Energy and Alberta Energy Company. The corporate headquarters are in Calgary, Alberta. In Canada,
EnCana Corporation
-Cost of Capital
Nabil Naouli Yong Peng Ahmed Alenazi Raj Kancharapu
Table of Contents
1. Introduction 2
2. History 2
a. Top Competitors 4
b. Major Product and Services 5
c. SWOT Analysis 5
3. Calculating Cost of Capital 6
a. Calculating Cost of Equity 7
i. Risk free rate 7 ii. Market Risk Premium 8 iii. Beta 8
b. Calculating Cost of Debt 9
c. Weighted Average Cost of Capital ( WACC ) 10
d. WACC- EnCana Corp. 2010 12
4. Discussion Questions & Summary 12
a. Hurdel Rate 12
b. Retained Earnings 13
c. Depreciation & Deferred Taxes 14
d. Summary: 14
5. References 15
Introduction
The case involves calculating the cost of capital for EnCana Corporation. The analysts in the case discussed about the use of several models and the components of the models to determine the cost of capital from various sources that EnCana uses. Financial statements for 2005 (Balance sheet and Income Statement as of December 31, 2005) were provided. In addition to this data, EnCana’s schedule of debt, selected data (closing stock price, EPS, Dividends per share, P/E ratio, Dividend yield and Total return) on EnCana’s common stock from 2002 to 2005 and yields on long-term government bonds from 1980 to 2005 was also provided.
History
EnCana Corporation is one of North America's largest natural gas producers, with about 95 percent of its production being natural gas. Its strategy is to be a natural gas pure-play company focused on the development of unconventional resources. The company produced 1.1 trillion cubic feet of natural gas in 2009. The company’s oil sands growth profile was one of the most aggressive in North America, with an additional 500 MBD (millions of barrels per day) of oil sands bitumen production expected by 2015.
EnCana was formed in 2002 with the merger of Pan Canadian Energy and Alberta Energy Company. The corporate headquarters are in Calgary, Alberta. In Canada,
References: • WikiWealth.com • Yahoo.com • Cost of Capital – Alex Tajirian • Gurufocus.com • Ascertaining the divisional Beta for project evaluation -the Pure Play Method- a discussion; N.R.Parasuraman ----------------------- [pic] [pic] [pic]