Why Does a New Issue of Common Stock Have a Higher

question 85

Multiple Choice

Why does a new issue of common stock have a higher cost of capital than retained earnings?

• A)New common stock has floatation costs.
• B)Existing common shareholders have seniority over new common shareholders.
• C)New common stock must pay a higher dividend.
• D)Retained earnings pertains to cash which has a zero cost of capital.

---

Definitions:

Body Language

Non-verbal communication methods through physical behaviors, such as gestures, posture, and facial expressions.

Physical Distractions

External stimuli in the environment that can interrupt or hinder an individual's focus or concentration.

Channel Limits

The constraints or limitations inherent in a communication medium that affect the flow or quality of information.

Status

The relative social, professional, or other standing of someone or something.