ROCE and cost of equity

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November 5, 2020 at 9:24 am #594127
trainee1
Participant
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Dear John,
Hope you are fine.
Could you please explain why the below statement is wrong? (Dec 2016, MCQ 28)

Return on capital employed must be greater than than the cost of equity if a project is to be accepted.

Thanks
November 5, 2020 at 10:21 am #594148
John Moffat
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The ROCE is a profit measure and as such is not comparable with the cost of equity. In addition when we appraise projects using the DCF approach we use the WACC and not the cost of equity.
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