Question

Funds acquired by the firm through retaining earnings have no cost because there are no divdend or interest payments associated with them, and no floatation costs are required to raie them, but captial raised vy selling new stock or congs does have a cost.

True / False.

Answer 1

Answer: False

Explanation: The reason is that Retained earning are considered as opportunity cost. Because retained earnings could be used to distribute profit among shareholders and they could invest somewhere to get return. Or retained earnings could be retained by the firm to invest in the company activities itself.