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Opportunity cost principle

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The reason why retained earnings have a cost equal to rss True False is because investors think they can (i.e., expect to) earn rs on investments with the same risk as the firm's common stock, and if the firm does not think that it can earn r on the earnings that it retains, it should pay those earnings out to its investors. Thus, the cost of retained earnings is based on the opportunity cost principle.

Reference no: EM133062486

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