Retaining cash can ________ the costs of raising capital in the future,but it can also ________ taxes and agency costs.

Question

Quizplus · Accepted Answer

Retaining cash can reduce the costs of raising capital in the future because a company with more cash on hand may not need to seek external financing as often, thus saving on costs associated with issuing new equity or debt. However, holding onto cash can also increase taxes, as profits retained and not distributed as dividends may still be subject to corporate income taxes. Additionally, retaining cash can lead to higher agency costs, which are costs associated with conflicts of interest between management and shareholders, as excess cash might lead to inefficient spending or investments that do not maximize shareholder value.

Retaining Cash Can ________ the Costs of Raising Capital in the Future,but