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

Beatnik

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

Viceroy

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

ayaz_mahmud369

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.

DSquaredSlim

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?)

transferpricing

Thank you all.