Since retained earnings is a more expensive source of financing than debt and preferred stock, the weighted average cost of capital will fall once retained earnings have been exhausted.

Question

Quizplus · Accepted Answer

Retained earnings are not a source of financing with a cost, but rather a source of financing that comes from profits that have been reinvested in the company. Therefore, exhausted retained earnings do not decrease the weighted average cost of capital, and this statement is false.

Since Retained Earnings Is a More Expensive Source of Financing