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Hi,
Would Finance the project by cutting the forthcoming dividend change the company gearing level?
The question was on the use of WACC, and the company WACC can only be used if both business risk and gearing remain unchanged by the project.
From my point of view, forthcoming dividend would not change company WACC, but I have found a few conflicting answers online…
Reducing dividends reduces gearing (just think about the sofp where reserves, part of equity, will be higher. However, a project financed in this way is all equity financed.
Note that if the xomlany is ungeared, reducing divident keeps it ungeared. Note also that WACC is calculated using market values, not book values.
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