Reference no: EM131713184

Question: An analyst within a company computes a project's NPV from the shareholders' perspective. In evaluating the project, the analyst uses the company's 12 percent cost of equity capital. The analyst first uses the equity residual method, and then checks the results with the displaced equity method. Both give the same NPV. The analyst also determines the project's return on equity. Surprisingly, the analyst finds that the two cash flow streams do not yield the same return. Why?