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Retained Earnings MCQs
Which of the following is true (Question 3)?
3. Which of the following is true?
- Saved Benefits are cheaper than External Equity
- Refunds are more expensive than External Equity
- Equity Retained earnings are free
- External Equity is cheaper than Internal Equity
Answer: A) Saved Benefits are cheaper than External Equity
Explanation:
Equity funding can be made in two ways, by using savings or by issuing additional dividends. The cost of equality is the same in both cases. The only difference is the floating costs. There are no floating costs in the event of savings but there will be floating costs when funds are received through a new stock exchange. Therefore, saved benefits are cheaper than External Equity.