EnCana Cost of Capital The way that any investment is measured can vary, and although there are different tools that can be used most will include the need to discount the future expected cash flows. The 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.