Finance and Short Term Debt

EncanaCost of Capital Before computing the expense of capital I'll figure cost of value and cost of dept and capital structure for ENCANA: 1 Cost of Debt: ENCANA cost of obligation remembered cost for momentary obligation , long haul obligation and exposure exchanged intrigue sum 1. 1 Short term Debt: Short term commitments (Ex. 1) = $ 1425 million Interest Rate (Ex. 1) = 3. 52% Total sum for transient obligation intrigue = 1425 ? 3. 52% = 50. 16 million 1. 2 Long term Debt: Other long haul liabilities (Ex. 1) = $1278 Interest rate (Prime rate charged) = 5. 25%Total sum for long haul obligation intrigue = 1278 ? 5. 25% = 67. 095 million 1. 3 Publicity exchanged: Publicity exchanged intrigue = all out intrigue †(transient obligation intrigue sum + long haul obligation intrigue sum) Publicity exchanged intrigue = 524 †( 50. 16 + 67. 095) = 406. 75 million Interest rate on exposure exchanged = Publicity exchanged intrigue ? L. T obligation on exposure exchanged Interest rate o n exposure exchanged = 406. 75 ? 5351 = 7. 6% Cost on obligation = Weight of long haul obligation ? Pace of enthusiasm on L. T obligation + Weight of transient obligation ? Pace of enthusiasm on S.T obligation + Weight of exposure exchanged ? pace of enthusiasm on exposure exchanged = 1278/8054* ? 5. 25 + 1425/8054 ? 3. 52 + 5351/8054 ? 7. 60 = 0. 833 + 0. 622 + 5. 049 = 6. 5% *The sum $8054 is aggregate sum of obligation given in Exhibit 3 1. 4 Determining Tax rate: Tax rate for ENCANA can be resolved as follow: Tax Rate= T= Net income before intrigue and duty ? charge cost T= 1260 ? 4089 = 30. 81% 1. 5 Cost of obligation after assessment: Cost of obligation after duty = cost of obligation before charge (1-Tax Rate) Cost of obligation after expense = 6. 5% ( 1-30. 81%) = 4. % ==; pace of obligation (rd) 2 Cost of value: There are following two different ways to compute ENCANA's expense of value : 1. Utilizing SML condition 2. Figuring cost of value by profit development model 2. 1 Calculation of cost of value for ENCANA by utilizing SML condition: rs = r* + MRP (b) r* = 4. 20 % (Govt. long haul Treasury Bills) rm = 13. 9% (S&P math normal return) MRP = rm †r = 13. 9-4. 20 = 9. 7 Beta = 1. 27 rs = 4. 20 + 9. 7 *1. 27 rs = 16. 519 % 2. 1 Calculation of cost of value for ENCANA by utilizing profit development model: rs = (D1/Po †F) + gWhere: D1= one year from now profit Po = current cost of offer in advertise F = Floatation Cost Growth from past information: Year | Dividend per share | Growth * | 2002 | 0. 2 | 2003 | 0. 15 | - 25% | 2004 | 0. 2 | 33. 3% | 2005 | 0. 28 | 40% | *Growth rate is determined as: 0. 15/0. 2= 0. 75-1 = - 0. 25? 100 =-25% 0. 2/0. 15= 1. 33-1= 0. 33 ? 100 = 33. 3% 0. 28/0. 2= 1. 4-1 =0. 4 ? 100 = 40% Average Growth= - 25 + 33. 3 + 40 = 16. 1% rs = (Do (1+ g)/Po †F) + g rs = 0. 28 (1+0. 1611)/56. 75 (1-0. 05) + 0. 1611 rs = 0. 25108/53. 9125 +0. 1611 rs = 16. 713% Average rs = (16. 713+16. 519)/2 = 16. 616% WACC: The WAC C equationâ is the expense of every capital componentâ multiplied by its corresponding weight and afterward summing:â WACC = rD (1- Tc )*( D / V )+ rE *( E / V ) Where, Re = cost of value Rd = cost of obligation E = showcase estimation of the association's value D =â market estimation of the company's obligation V = Total Capital = E + D E/V = we = level of financing by value D/V = wd= level of financing by obligation T =â corporate charge rate By putting Values:Total Equity= E = no of offers * cost of offers = 854. 9 * 56. 75 = $48515. 575 million Total Capital = Equity + Debt = 48515. 575+ 8054 = $56596. 575 Million WACC = wd * rd + we * re = 8054/56596. 575 * 4. 5 + 48515. 575/56596. 575 * 16. 616 = 0. 6404 + 14. 2436 = 14. 884% ENCANA ought to acknowledge this undertaking which will give an arrival of more than 14. 884%, in light of the fact that ENCANA needs to pay their speculators an arrival of 14. 884 and this will likewise produce benefit whi ch can be used as held income and increment development of its profit.