The cost of equity capital in the form of new common stock will be higher than the cost of retained earnings because of
A) the existence of taxes.
B) the existence of flotation costs.
C) investors' unwillingness to purchase additional shares of common stock.
D) the existence of financial leverage.

Question

Quizplus · Accepted Answer

Flotation costs refer to the costs incurred when issuing new securities, such as underwriting fees, legal fees, and other expenses. These costs increase the cost of equity capital in the form of new common stock, making it higher than the cost of retained earnings. The other options are not directly related to the cost of equity capital.

The Cost of Equity Capital in the Form of New