Question

The cost of retained earning is associated with a/an _______________.

• A. Opportunity cost
• B. Implicit cost
• C. Explicit cost
• D. Either (a) or (b)

Answer 1

The correct option is D Either (a) or (b)

The cost of retained earnings is the earnings foregone by the shareholders. In other words, the opportunity cost of retained earnings may be taken as the cost of retained earnings. It is equal to the income that the shareholders could have otherwise earned by placing these funds in alternative investments.