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Essay / Research Paper Abstract
This 8 page paper is based on a case study supplied by the student. The paper looks at the way that the cost of capital could be calculated and some of the options in the choices made and then assesses whether net present value (NPV) or internal rate of return (IRR) would be best used when assessing potential investments or projects. The bibliography cites 3 sources.
Page Count:
8 pages (~225 words per page)
File: TS14_TEencana1.rtf
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Unformatted sample text from the term paper:
question is what the discount amount should be. A basic measure may be to discount the future values by the expected level of inflation, as this would then account for
the time value of money and result in a figure that gives the real value of the future funds. However, it can also be erroneous for a firm, as
for a company there is always a cost associated with the use of capital, regardless of whether this is debt or equity. For the firm this cost of capital
can be argued as a starting point when looking at the way that future discount values are estimated, as this is the real cost to the firm. However, this is
only a starting point; it may be argued that there should be adjustments made, in order to account for elements such as risk and reward. In addition to this there
are a number of different factors that will impact on the way that the cost of capital is circulated. We will look first at how the cost of capital could
be calculated for EnCana, and then at how this may need to be adapted. Any business will have to pay a rate of return on the capital it uses, this
may be in the form of return on the share capital, such as dividends, or in interest on loan payments. Cost of capital in any organisation, international or domestic is
the return expressed as an interest rate the company pays on all of the capital which is used in the financing of its activities. As the capital originates from
a range of sources, such as share capital (also known as equality), loan capital and debt, the cost of capital is a combination of all of these factors. The
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