In capital budgeting and cost of capital analyses, the firm should always consider retained earnings as the first source of capital, since this is a free source of funding to the firm.

Question

Quizplus · Accepted Answer

While retained earnings are a source of funding that does not require the payment of dividends or interest, they are not necessarily "free" as the earnings have already been taxed. Additionally, the firm may have other uses for its retained earnings and may need to seek external sources of funding.

In Capital Budgeting and Cost of Capital Analyses, the Firm