Cost of Capital of Retained Earnings capital, understand, somebody, equity, reason

scruge

Guys, can somebody explain why cost of capital of retained earnings is considered same as cost of capital of equity. I didn't understand the reason behind it.

Thank you

infinitybenzo

Thank you all.

hoangvu90

ATH Wrote:
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> This might be a simplistic response but RE are
> part of the internal equity accounts.


That's exactly it.

(If RE _isn't_ equity, then what is?)

busterbluth

I believe it has to do with the opportunity cost. Retained earnings should grow the firm. If the company can't utilize those retained earnings in such a way that is superior than what its shareholders would earn if it paid it out in dividends and allowed to invest those dividends in a different company, then the company isn't maximizing their value.

bkballa

This might be a simplistic response but RE are part of the internal equity accounts.