Reason Why Retained Earnings Have a Cost Equal to Rs

question 32

True/False

reason why retained earnings have a cost equal to rs is because investors think they can (i.e., expect to) earn rs on investments with the same risk as the firm's common stock, and if the firm does not think that it can earn rs on the earnings that it retains, it should distribute those earnings to its investors Thus, the cost of retained earnings is based on the opportunity cost principle.

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