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ABC Company is looking at investing in a project that has an npv of $5Million. ABC...

ABC Company is looking at investing in a project that has an npv of $5Million. ABC currently has $20Million in cash and the project needs a $20Million investment.

Is it better for shareholders to finance the project internally or to borrow $20Million to finance it?

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Answer #1

A company should not use all its funds in a single project as the popular adage goes, we should put all our eggs in a single basket. We should all diversify our investments. We should all look at the timing of cash flows coming from the project

Financing the whole project externally will put additional liability of interest payments on the firm

So it should be mix of Debt and Equity, So that we should able to make a proper capital structure for the project.

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