As a source of financing, once retained earnings have been exhausted, the weighted average cost of capital will
A) remain the same.
B) change in an undetermined direction.
C) decrease.
D) increase.

Question

Quizplus · Accepted Answer

Once retained earnings have been exhausted, the company needs to obtain funding from external sources such as debt or equity. This will increase the company's financial leverage, resulting in a higher risk profile and a higher cost of capital. Therefore, the weighted average cost of capital will increase.

As a Source of Financing, Once Retained Earnings Have Been