The cost of retained earnings is generally higher than both the cost of debt and cost of preferred stock.

Question

Quizplus · Accepted Answer

The cost of retained earnings is the opportunity cost of not paying out dividends to shareholders. This cost is generally higher than the cost of debt and cost of preferred stock because shareholders require a higher return on their investment to compensate for the risk of not receiving dividends.

The Cost of Retained Earnings Is Generally Higher Than Both