Question

Which statement is TRUE? a.The tradeoff a firm faces whether using retained earnings or borrowed funds is the same. b.Using retained earnings has a higher opportunity cost than does using borrowed money because retained earnings come from past profits. c.Borrowing money will always be more expensive than using retained earnings. d.The cost of retained earnings is unrelated to the cost of borrowing money.

Answer 1

Answer:

D

Explanation:

The cost of retained earning is unrelated to cost of borrowing money and as such it will be unreasonable to compare the two. However, it's true that retained earning comes from past profit and it will be easier to plough back retained earning than going for external borrowing.