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Sir while calculating the project specific return why does the question ask to calculate the project specific cost if equity? even though the gearing does not change finance is still being raised by both equity and debt?
the other question the how is wacc and capital asset pricing model different or are these just two methods to find the cost of capital?
The project specific cost of equity is the shareholders required return for the level of risk in their investment (the risk of the project itself together with any extra risk due to gearing used for the project).
The cost of capital is the WACC. It is CAPM that determines the cost of equity and the cost of debt that are used to calculate the WACC.
Sir so cap m measure rate of required by investor( cost of equity) with gearing(of the project) they would want a higher rate which we would calculate using the complicated looking formula. and that cost of equity would form a part of wacc calculation. is this correct?
when can using cost of equity(capn) used as discount rate. if no other sources finance is raised?
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