When retained earnings are used up and new common stock is issued, we know that the cost of:
A) equity has increased
B) equity has dropped
C) equity is unaffected
D) both common and preferred stock are affected

Question

Quizplus · Accepted Answer

When retained earnings are used up, the company must turn to other sources of financing, such as issuing new common stock. This increases the number of shares outstanding, which can dilute the value of existing shares and increase the cost of equity. Therefore, the cost of equity has increased.

When Retained Earnings Are Used Up and New Common Stock