For many firms, the cheapest and most important source of equity capital is in the form of
A) debt.
B) common stock.
C) preferred stock.
D) retained earnings.

Question

Quizplus · Accepted Answer

Retained earnings are profits that have been earned but not paid out as dividends. These earnings can be reinvested back into the company's operations, providing a source of internal equity financing. Since retained earnings are already owned by the company, there are no additional costs or dilution of ownership as would be the case with issuing new stock. Therefore, retained earnings are often the cheapest and most important source of equity capital for many firms.

For Many Firms, the Cheapest and Most Important Source of Equity