ENCANA Corporation: The Cost of Capital

To calculate WACC, we need the following components

 Weight of Debt

 Rate of debt
 Tax

 Weight of Equity
 Rate of Equity


Weight of Debt:
Total Capital = total equity + total debt = $16007 + $8054

= $24601

Weight of Debt (Wd)=debt/total capital

=8054/24601

=0.33

Weight of Equity:
Weight of Equity (We)=equity/total capital

=16007/24601

=0.67

Rate of Debt: We calculated by taking weighted average of given short term and
long term debts and multiplying it with their weights ( given)

1.8.125%

2. 7.20%
3. 7.375%
4. 6.50%
adding these four to get weighted average

Ravg = 8.125+7.20+7.375+6.50/4

Average short Term Rate of Debt

Rd= 3.52%
Calculating long term and short term Debts

Short term debt= 1425/8054

= 0.1769

Long Term Debt= 6629/8054

= 0.8230

Multiplying weights into rates wee get,

Rd= 7.3% *0.8230 + 3.52% *0.1769

= 6.630%

Rate of Equity:
Rs = Rrf + (rM - Rrf) beta

rRF=4.20 (given)

rM=13.9

beta=13.9

Rs= 4.20+(13.9-4.20)1.27

= 16.15%

Tax:

Tax = 1260/4089

= 0.3081

R eq (avg) = 17.6% + 16.519% + 7.63/3

= 13.9%

WACC = WdRdavg(1-T) + We Req(avg)

= 0.33 * 6.630(1-0.3081) + 0.67 * 16.15

= 0.33 * 6.630(0.6919) + 0.67 * 16.15

= 0.33 * 0.04587 + 0.67 * 0.1615

= 0.01513 + 0.1082

= 0.1233 *100
= 12.33%