THE COST OF EQUITY IN THE EVALUATION OF INVESTMENT PROJECTS IN THE METALLURGICAL INDUSTRY

Equity cost is a core element in any investment project assessment both when a project is 100% financed from equities and, in the second case, when it is financed from two sources(equities and borrowed capitals). When setting up a new company, the total costs of the invested social capital is the present value of the future cash flows minus shareholders' contribution. The discounting rate will consider the risk of exploitation regarding the new company. If the investment project is implemented by an already existent company, then equity will be established at a level required by the shareholders (supposing that the investment project has the same risk of exploitation). If the project is likely to have greater risks, then shareholders will ask for a proper increase of financing from project own sources or equity. In case of mixed financing, equity cost changes itself in accordance with the leverage rate that generates a correlated increase of the financial risk.