As a source of financing, once retained earnings have been exhausted, the weighted average cost of...

As a source of financing, once retained earnings have been exhausted, the weighted average cost of capital will

	1.	decrease.
	2.	change in an undetermined direction.
	3.	increase.
	4.	remain the same.

Solutions

Expert Solution

As a source of financing, once retained earnings have been exhausted, the weighted average cost of capital will INCREASE

Option 3 is correct.

Once retained earnings exhausted the company will face shortage of funds. it should either raise funds through debt funds or raise new capital. since shortage of funds customers taking high risk expected high returns and increases the overall cost of capital.

jeff jeffy answered 1 year ago

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