Question

How does the Cost of Retained earnings relate to cost of New Equity Capital? As a

Financial manager, what order of raising new capital for a growing firm would you follow

and why?​

Answer 1

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Retained earnings, like equity funds, have no accounting cost but do have an opportunity cost. The opportunity cost of retained earnings is the dividend foregone by the shareholders. ... As such, the cost of equity reflects the return which shareholders would receive if cash flows were paid out by way of dividends.