Cost of Capital - Encana Corp Essay

2340 Words Aug 13th, 2010 10 Pages
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


The case involves calculating the cost of capital for EnCana Corporation.
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The integrated oil division contains two key crude oil resource plays: Foster Creek and Christina Lake.

3 Top Competitors

□ BP Plc □ Chevron Corporation □ ExxonMobil Corporation □ Devon Energy □ Abraxas Petroleum Corporation □ Baytex Energy Trust □ Canadian Natural Resources Ltd □ Canadian Oil Sands Trust □ Celtic Exploration Ltd. □ Compton Petroleum Corp □ Enterra Energy Trust □ Husky Energy Inc

4 Major Product and Services

□ EnCana Corporation is engaged in the exploration, production, and marketing of oil and gas. The company’s key operations include the following: □ Natural gas exploration, production, and processing □ Transportation and marketing of crude oil, natural gas, and natural gas liquids □ Refining of crude oil and the marketing of refined petroleum products

5 SWOT Analysis


Calculating Cost of Capital

We used Capital asset pricing model and Dividend discount models to estimate the cost of equity and used weighted average cost of long term bonds to estimate the cost of debt. Weighted average cost of capital (WACC) was used to estimate the overall cost of capital for EnCana.

• What is Cost of Capital and why do we need to know ? • Opportunity cost of an

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