The cost of capital for retained earnings:
A)cannot be determined
B)may be determined by more than method
C)is greater than the cost of capital for common stock
D)none of the above

Question

Quizplus · Accepted Answer

The cost of capital for retained earnings can be determined by multiple methods such as the dividend capitalization method or the capital asset pricing model (CAPM). Therefore, option A is incorrect. The cost of capital for retained earnings is not necessarily greater than the cost of capital for common stock as retained earnings are a source of internal equity financing and do not involve issuing new shares of stock. Hence, option C is also incorrect.

The Cost of Capital for Retained Earnings