- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
Hello sir,
Just a little clariffication,Firstly,
The Cost of equity needs to be adjusted to take into account risks from a Specific project. “My question here is:
Does the new adjusted return of equity affects all shareholders or it only affects shareholders that financed the specific project?secondly,
Does the company has to raised new finance in order to invest in the project specific investment or can it be taken out of the already existing finance pool?All shareholders. All shareholders are invested in the same company, and it is the company that is investing in the project which affects the risk for all shareholders.
They certainly do not have to raise new finance by issuing shares or debt. Using ‘already existing finance pool’ is using retained earnings, and this is effectively raising finance from shareholders because retained earnings belong to the shareholders.
Do watch my free lectures on this. The lectures are a compete free course for Paper F9 and cover everything needed to be able to pass the exam well.
- You must be logged in to reply to this topic.