The Reason Why Retained Earnings Have a Cost Equal to Rs

question 75

True/False

The 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 pay those earnings out to its investors. Thus, the cost of retained earnings is based on the opportunity cost principle.

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Definitions:

Across Behaviors

Pertains to the examination or comparison of actions or responses in different situations or contexts.

ABAB Reversal Design

A research design involving alternating periods of applying and withdrawing treatment to see how behavior changes.

Alternative Explanations

Different theories or reasons that may explain observations or facts, aside from the primary hypothesis.

Reversal Design

An experimental design that involves repeatedly applying and removing a treatment to observe if doing so results in corresponding changes in the dependent variable.