I think there is no solution regarding this exercise in the excel available on Moodle.
9. “Companies should invest in projects that yield a positive return on equity, that will guarantee that the firm and shareholders value will grow”. Is this sentence true? Justify.
This is my answer: Companies should invest in projects only if the ROE exceeds the shareholders' required return (cost of equity), not just if ROE is positive. A project with ROE lower than the required return actually destroys shareholder value, even if it's positive. Therefore, value is created only when ROE > required return. Only in this instance, companies should invest in projects. As such, the sentence is not entirely true.
Am I right?
Thank you in advance,
Matilde Fonseca