'Finance and Short Term Debt\r'

'Encana make up of roof earlier calculating the embody of metropolis Ill enume lay out toll of justness and court of dept and capital structure for ENCANA: 1 Cost of Debt: ENCANA cost of debt included cost on abruptly condition debt , retentive term debt and publicity traded following summation 1. 1 picayune term Debt: Short term obligations (Ex. 1) = $ 1425 meg Interest Rate (Ex. 1) = 3. 52% bring amount for short term debt beguile = 1425 ? 3. 52% = 50. 16 one one thousand thousand million million 1. 2 Long term Debt: Other large term liabilities (Ex. 1) = $1278 Interest enume locate (Prime localize charged) = 5. 25%Total amount for farsighted term debt bet = 1278 ? 5. 25% = 67. 095 million 1. 3 Publicity traded: Publicity traded engross = total interest †(short term debt interest amount + long term debt interest amount) Publicity traded interest = 524 †( 50. 16 + 67. 095) = 406. 75 million Interest rate on publicity traded = Publicity traded inter est ? L. T debt on publicity traded Interest rate on publicity traded = 406. 75 ? 5351 = 7. 6% Cost on debt = freight of long term debt ? Rate of interest on L. T debt + Weight of short term debt ? Rate of interest on S.T debt + Weight of publicity traded ? rate of interest on publicity traded = 1278/8054* ? 5. 25 + 1425/8054 ? 3. 52 + 5351/8054 ? 7. 60 = 0. 833 + 0. 622 + 5. 049 = 6. 5% *The amount $8054 is total amount of debt given in Exhibit 3 1. 4 Determining revenueation income rate: Tax rate for ENCANA can be determined as follow: Tax Rate= T= Net mesh out front interest and tax ? tax expense T= 1260 ? 4089 = 30. 81% 1. 5 Cost of debt later on tax: Cost of debt after tax = cost of debt before tax (1- Tax Rate) Cost of debt after tax = 6. 5% ( 1- 30. 81%) = 4. % ==; rate of debt (rd) 2 Cost of right: in that location are following two shipway to calculate ENCANAs cost of equity : 1. victimisation SML equation 2. Calculating cost of equity by dividend harvest model 2 . 1 Calculation of cost of equity for ENCANA by using SML equation: rs = r* + MRP (b) r* = 4. 20 % (Govt. long Term treasury Bills) rm = 13. 9% (S&P arithmetical average render) 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 equity for ENCANA by using dividend gain model: rs = (D1/ Po †F) + gWhere: D1= next year dividend Po = current price of appoint in food trade F = floatation Cost Growth from past entropy: Year | Dividend per share | Growth * | 2002 | 0. 2 | | 2003 | 0. 15 | -25% | 2004 | 0. 2 | 33. 3% | 2005 | 0. 28 | 40% | *Growth rate is metric 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% intermediate 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% WA CC: The WACC equation is the cost of each capital component  work out by its proportional weight and thus summing:  WACC = rD (1- Tc )*( D / V )+ rE *( E / V ) Where, Re = cost of equity Rd = cost of debt E = market value of the firms equity D = market value of the firms debt V = Total Capital = E + D E/V = we = percentage of finance by equity D/V = wd= percentage of financing by debt T = corporate tax rate By putting value:Total Equity= E = no of shares * price of shares = 854. 9 * 56. 75 = $48515. 575 million Total Capital = Equity + Debt = 48515. 575+ 8054 = $56596. 575 trillion WACC = wd * rd + we * re = 8054/56596. 575 * 4. 5 + 48515. 575/56596. 575 * 16. 616 = 0. 6404 + 14. 2436 = 14. 884% ENCANA should accept this suffer which will give a father of more than 14. 884%, because ENCANA has to pay their investors a return of 14. 884 and this will also generate cabbage which can be utilized as retained earnings and increa se growth of its dividend.\r\n'