Retained Earnings Are a Cheaper Source of Funds Than the Sale

question 32

Multiple Choice

Retained earnings are a cheaper source of funds than the sale of new equity because

• A) retention defers the payment of taxable dividends to shareholders
• B) there are no flotation costs
• C) new shares are usually priced below current market price
• D) all the above

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Definitions:

Degrees of Freedom

A measure indicating the extent to which variables in a statistical model are allowed to vary, impacting the accuracy of conclusions.

Two Tailed Test

A statistical test where the critical area of a distribution is two-sided and tests whether a sample is greater than or less than a certain range of values.

Test-statistic

A value calculated from sample data during a hypothesis test used to determine the validity of the hypothesis.

Sample Size

The number of observations or elements selected from a population to participate in a statistical study.