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Is it true that Retained earnings have no cost to the firm?
Yes
Why is the cost of new common stock greater than the cost of retained earnings?
it could be because issuing new shares in the market involves more cost such as flotation costs such as underwriting cost and the cost of having to under-price the stock so as to sell the issue.
Would a purchase of treasury stock affect retained earnings?
Answer:The purchase of treasury stock does not affect retained earnings. When the company owns treasury stock, then 'treasury stock' has a debit balance. It is nevertheless presented under equity, with a negative sign.(Technically, when a T-account switches from debit to credit - or the other way around - the sign flips.)Nevertheless, a subsequent sale of treasury stock can affect retained earnings when the amount received is below the cost (a loss is made). This loss is subtracted from retained earnings if there are no cumulative gains on prior sales of treasury stock.
Is equity and retained earnings revalued?
Equity and retained earnings are generally not revalued in the same way that certain assets can be revalued under accounting standards. Retained earnings represent cumulative profits that have not been distributed as dividends, and they are adjusted only through net income or losses and dividend declarations. Equity can reflect changes in market value through stock prices, but the accounting entries for equity, including retained earnings, are based on historical cost and not subject to revaluation. However, certain transactions like stock splits or equity financing can affect these figures.
Why is there a cost associated with reinvestment earnings?
Reinvestment earnings, while they contribute to a company's growth, have an associated cost because they often represent an opportunity cost. When profits are reinvested rather than distributed to shareholders as dividends, investors forgo immediate returns that could have been utilized elsewhere for potentially higher returns. Additionally, reinvested earnings may involve risks and uncertainties, as the effectiveness of the reinvestment is not guaranteed. Therefore, the cost of reinvestment lies in the lost alternatives and the inherent risks involved in pursuing growth.
Explain why retained earnings have an associated opportunity cost?
Retained earnings have an opportunity cost associated with them because they can be invested to earn more rather than keeping them idle. For example reatined earnings can be invested in a savings account in a bank and earn interest but if this is not done the are loosing some extra income and so if they are invested somewhere else, the bank rate will be the opportunity that has been lost. Opportunity cost is the real cost of choosing one thing and not another.
Is it true that Retained earnings have no cost to the firm?
Yes
If the flotation cost goes up the cost of retained earnings will?
go up
How retained earning is a cost free source of fund?
retained earnings is costfree source of finance comment?
Why is the cost of new common stock greater than the cost of retained earnings?
it could be because issuing new shares in the market involves more cost such as flotation costs such as underwriting cost and the cost of having to under-price the stock so as to sell the issue.
Would a purchase of treasury stock affect retained earnings?
Answer:The purchase of treasury stock does not affect retained earnings. When the company owns treasury stock, then 'treasury stock' has a debit balance. It is nevertheless presented under equity, with a negative sign.(Technically, when a T-account switches from debit to credit - or the other way around - the sign flips.)Nevertheless, a subsequent sale of treasury stock can affect retained earnings when the amount received is below the cost (a loss is made). This loss is subtracted from retained earnings if there are no cumulative gains on prior sales of treasury stock.
Is equity and retained earnings revalued?
Equity and retained earnings are generally not revalued in the same way that certain assets can be revalued under accounting standards. Retained earnings represent cumulative profits that have not been distributed as dividends, and they are adjusted only through net income or losses and dividend declarations. Equity can reflect changes in market value through stock prices, but the accounting entries for equity, including retained earnings, are based on historical cost and not subject to revaluation. However, certain transactions like stock splits or equity financing can affect these figures.
The cost of external equity is greater than the cost of retained earnings because a. floatation costs on new equity b. capital gains tax on new equity c. interest expense d. risk premium?
The cost of external equity is higher because the floatation costs on new equity.
What is the full form of KRE?
KRE stands for Cost of Retained Earnings or present common stock. It is one of the direct source of capital for any business.
Why is there a cost associated with reinvestment earnings?
Reinvestment earnings, while they contribute to a company's growth, have an associated cost because they often represent an opportunity cost. When profits are reinvested rather than distributed to shareholders as dividends, investors forgo immediate returns that could have been utilized elsewhere for potentially higher returns. Additionally, reinvested earnings may involve risks and uncertainties, as the effectiveness of the reinvestment is not guaranteed. Therefore, the cost of reinvestment lies in the lost alternatives and the inherent risks involved in pursuing growth.
Why is the cost associated with internal common equity?
The cost associated with internal common equity, often referred to as the opportunity cost of retained earnings, represents the return that shareholders could have earned if the profits were distributed as dividends or invested elsewhere. It reflects the expected returns required by investors, as they seek compensation for the risk of holding the company's stock. Additionally, this cost is influenced by the company’s growth rate and overall market conditions, as higher growth expectations generally lead to a higher required return. Ultimately, it is a crucial component in determining a company's overall cost of capital and making investment decisions.
How do you calculate gross equity?
Owner's Equity = Contributed Capital ± Retained Earnings Contributed capital is money that has been contributed to a company by its owners or by a direct investment made by stockholders in a corporation. A company would have stockholders if that company sells shares or stock. Retained earnings is a companys' accumulated profits that have been put back or reinvested into the company. Some examples of retained earnings are supplies expense, rent expense, wages expense, interest expense, utilities expense, sales revenue, cost of goods sold, and depreciation expense. A return on equity (ROE) is the net income divided by stockholders' equity. Assets = Liabilities + Owners Equity
