A firm's cost of ____ reflects an opportunity cost: what the existing shareholders could have earned if they had received the earnings as dividends and invested the funds themselves.

Question

Quizplus · Accepted Answer

The cost of retained earnings is the opportunity cost of investors receiving dividends and investing the funds themselves. This is because the firm could have used the earnings to pay dividends to shareholders, who could then choose to invest the funds elsewhere.

A Firm's Cost of ____ Reflects an Opportunity Cost: What