Which of the following sources of funds is usually the least expensive? Group of answer choices retained earnings debt selling new common stock borrowing it from your family (note:? while this may be true sometimes - here it is NOT the correct answer!)

Question

Business

Hinton

8 October, 08:46

Which of the following sources of funds is usually the least expensive? Group of answer choices retained earnings debt selling new common stock borrowing it from your family (note:? while this may be true sometimes - here it is NOT the correct answer!)

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Answers (1)

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Lilly Herring · Answer 1

The answer is A. Retained Earnings.

Explanation:

Retained earnings is that part of profit that is not distributed as dividends to the shareholders. Retained earnings are reinvested into the business to make the business grow.

Retained earning is considered as the least expensive source of funds because it is believed that it attracts no cost of fund and it is not risky.

Option B (Debt) has a cost. The interest rate that will be paid with the principal is the cost.

Option C. (selling new common stock) equity also has a cost. The rate of return the shareholders are expecting on the invested fund.