Since retained earnings are viewed as a fully subscribed issue of additional common stock, the cost of retained earnings is ________.
A) less than the cost of new common stock equity
B) equal to the cost of new common stock equity
C) greater than the cost of new common stock equity
D) not related to the cost of new common stock equity

Question

Quizplus · Accepted Answer

The cost of retained earnings is typically lower than the cost of new common stock equity since there are no flotation costs, underwriting fees, or other expenses associated with issuing new shares. Retained earnings are simply profits that have been reinvested into the company rather than paid out as dividends to shareholders. Therefore, using retained earnings to fund new projects or investments can be more cost-effective than issuing new common stock.

Since Retained Earnings Are Viewed as a Fully Subscribed Issue