In general,it is not possible for r_e,the cost of new equity,to be lower than r_s,the cost of retained earnings.However,an exception to this rule occurs when the stock price increases just prior to the firm issuing new equity such that it more than offsets the flotation costs and thus,r_e becomes less than r_s.

Question

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The cost of new equity (re) typically includes flotation costs, making it higher than the cost of retained earnings (rs). A temporary stock price increase does not change this fundamental relationship.

In General,it Is Not Possible for Re,the Cost of New

In General,it Is Not Possible for R_e,the Cost of New