Even if a firm obtains all of its common equity financing from retained earnings, its marginal cost of capital (MCC) schedule could still increase if very large amounts of new capital are raised.

Question

Quizplus · Accepted Answer

This is because as the amount of capital raised increases, the firm may have to resort to using more expensive forms of financing, such as debt or preferred stock, to meet its funding needs. This would lead to an increase in the overall cost of capital for the firm, and therefore an increase in the marginal cost of capital schedule.

Even If a Firm Obtains All of Its Common Equity