The cost of retained earnings is ________.
A) less than the cost of debt
B) equal to the cost of a new issue of common stock
C) equal to the cost of common stock equity
D) irrelevant to the investment/financing decision

Question

Quizplus · Accepted Answer

The cost of retained earnings is equal to the cost of common stock equity. Retained earnings are profits that are not paid out as dividends but are instead reinvested in the company. This reinvestment provides additional equity to the firm, which has a cost of equity. Therefore, the cost of retained earnings is equal to the cost of equity.

The Cost of Retained Earnings Is ________