Which of the following is the correct relationship between different capital components of a firm? r_d = before-tax cost of debt; r_s = cost of retained earnings; re = cost of new common equity

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Retained earnings are less risky for a firm compared to new common equity, therefore the cost of retained earnings (rs) is typically lower than the cost of new common equity (re). The before-tax cost of debt (rd) is typically lower than both rs and re, as debt financing is considered a safer option for creditors and therefore carries lower risk.

Which of the Following Is the Correct Relationship Between Different