cost of common equity obtained by retaining earnings is the rate of return the marginal stockholder requires on the firm's common stock.

Question

Quizplus · Accepted Answer

Retained earnings are a source of internal financing that can be used to fund a company's growth and expansion. The cost of common equity obtained by retaining earnings is based on the required rate of return that the marginal stockholder (i.e. the investor who is considering whether or not to purchase additional shares of the company's stock) expects to receive on their investment.

Cost of Common Equity Obtained by Retaining Earnings Is the Rate