The cost of external equity is greater than the cost of internal equity because
A)it decreases the earnings per share.
B)it increases the market price of the stock.
C)dividends are increased.
D)of the flotation or issuance costs.

Question

Quizplus · Accepted Answer

The cost of external equity, which is the cost associated with raising capital from new investors, is greater than internal equity because of the flotation or issuance costs. These costs include underwriting fees, legal fees, and other expenses incurred in the process of issuing new stocks or bonds. On the other hand, internal equity or retained earnings do not incur such costs.

The Cost of External Equity Is Greater Than the Cost