General Studies · Cost of Capital
Given below are two statements: one is labelled as Assertion A and the other is labelled as Reason R. Assertion A: Retained earnings, though an internal source of finance with no explicit interest payments, are not considered a 'free' source of capital for an enterprise. Reason R: Retained earnings are cost-free for the enterprise because using them does not involve any opportunity cost regarding the potential returns shareholders could have earned on alternative investments. In the light of the above statements, choose the most appropriate answer from the options given below:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both A and R are correct and R is the correct explanation of A
- 2Both A and R are correct but R is NOT the correct explanation of A
- 3A is correct but R is not correct✓
- 4A is not correct but R is correct
Correct answer
A is correct but R is not correct
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