The cost of retained earnings ________. A) is the loss of the dividen

The cost of retained earnings ________.

A) is the loss of the dividend option for the owners
B) is the cost of issuing new common stock without the flotation costs
C) is the appropriate cost of capital for the shareholders
D) All of the above

ANSWER

Answer: D
Explanation: D) Retained earnings are the portion of net income not paid out as dividends. Because the funds are kept by the firm, the managers have an obligation to meet the opportunity costs of the shareholders so the cost of retained earnings should be considered the cost of raising new equity without any additional flotation costs.