jarobi04

Schweser is correct. If the firm has enough money in RE to fund the project, the cost of equity is the internal cost (cost of RE). If the firm requires to issue stock this is externally generated and raises the cost of equity because of the issue costs.

Just pay close attention to how much the firm needs to raise (in equity that is), and use the cost of internally generated equity (cheaper) if they have enough. If they need to issue stock, then use the higher amount (cost of equity after issuing stock).