Cost of Retained Earnings

It is effectively included in the WACC because we use the cost of equity and the total market value of equity. The market value of equity includes retained earnings - it is the most obvious reason for the market value being higher than the share capital :-)

Oh yes!!!!! You're right, it makes sense now Thank you so much

Just another small doubt When we get the net present value of a project (lets say $10,000), will we pay the cost of borrowed funds from this money to the lenders? Or is $10,000 the final profit figure which will go the retained earnings and the cost of capital repayment has already been done in the NPV calculation?

The NPV is after accounting for interest and is the gain that will go to the shareholders (in terms of increasing the market value of the shares).

Oh...and the capital gain on shares will arise at the commencement of the project or after the project is completed?

At the commencement, because share prices are based on future expectations.

Okay, thanks a lot

You are welcome :-)