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It may be defined as the opportunity cost in terms of dividends foregone by/withheld from the equity shareholders. i.e. in other words, if the company would have given Reserves as Dividends at what rate of return the same would have been invested by the shareholder. So it envisages opportunity cost of money.
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COST OF RETAINED EARNINGS
It may be defined as the opportunity cost in terms of dividends foregone
by/withheld from the equity shareholders. i.e. in other words, if the company
would have given Reserves as Dividends at what rate of return the same would
have been invested by the shareholder. So it envisages opportunity cost of
money.
COST OF RETAINED EARNINGS
It may be defined as the opportunity cost in terms of dividends foregone
by/withheld from the equity shareholders. i.e. in other words, if the company
would have given Reserves as Dividends at what rate of return the same would
have been invested by the shareholder. So it envisages opportunity cost of
money.
Cost of retained earnings is the same as the cost of an equivalent fully
subscribed issue of additional shares, which is measured by the cost of equity
capital.
Retained earnings are โdividends withheldโ, that is, if were in the hands of the
investors (shareholders) they could have earned on these by investing
somewhere else. The assumption is that the firm is earning โat least equal to ke
on these retained earnings. So the cost kr is approximately equal to ke (a little
less than ke because of floatation costs are not there, kr < ke)
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