Question

Retained earnings are generated by the firm's internal operations and are immediately reinvested
to earn more money for the company and its shareholders. Therefore, such funds have
zero cost to the company. Do you agree with the statement? Explain

Answer 1

Retained earnings are reinvested by those companies who are having a very high growth because they want to invest their money into their own growth and retained earning are representative of the overall retained profits of the company and they have a a cost associated with them.

These retained earnings are generally having cost in terms of loss of opportunity because these capital which are kept as retained earning would have been invested in some other project so these retained earnings will always will have some cost of retained earning and these does not have zero cost so I will be trying to advocate that retained earning are not zero cost and they have cost associated with them because of loss of opportunity as these funds would have been employed somewhere else.

I do not agree with this statement because retain earning does not have zero cost and they have cost of loss of opportunity associated with them because these funds would have been invested in other projects.