Retained earnings has a cost associated with it because A) new funds must be raised. B) there is an opportunity cost associated with stockholder funds. C) K_e g. D) flotation costs increase the cost of funding.

Question

Retained earnings has a cost associated with it because A) new funds must be raised. B) there is an opportunity cost associated with stockholder funds. C) K_e > g. D) flotation costs increase the cost of funding.

Quizplus · Accepted Answer

Retained earnings have a cost associated with them because they represent foregone opportunities for the company to use the funds in other ways, and therefore the opportunity cost of using shareholder funds must be considered.

Retained Earnings Has a Cost Associated with It Because