The cost of retained earnings is: A) ks= P_s/D₁ B) the cost of paying dividends. C) rate of return necessary to justify not making dividend payments. D) There is no cost of retained earnings; they are residual earnings of the firm.

Question

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The cost of retained earnings is essentially the rate of return that could be earned by shareholders if the earnings were distributed as dividends instead of being retained by the firm. It represents the opportunity cost of reinvesting earnings back into the company rather than paying them out to shareholders.

The Cost of Retained Earnings Is