The Reason Why Retained Earnings Have a Cost Equal to R_s

question 12

True/False

The reason why retained earnings have a cost equal to r_s is because investors think they can (i.e. ,expect to)earn r_s on investments with the same risk as the firm's common stock,and if the firm does not think that it can earn r_s 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:

Tradable Emission Permits

Environmental policy tools that allow companies to buy or sell allowances to emit a certain amount of pollutants, incentivizing pollution reduction.

Emissions

Emissions refer to the release of substances, often gases or particles, into the atmosphere, which can contribute to pollution and environmental change.

Tradable Emissions Permits

Allowances that can be bought and sold, granting the holder the right to emit a certain amount of pollutants, designed to reduce overall environmental impact.

Emission Costs

The costs associated with the release of pollutants into the environment from industrial or other activities.