Which of the following statements is correct? A. Since the money is readily avai

Question

Which of the following statements is correct? A. Since the money is readily available, Retained Earnings is "essentially free"& much less expensive than the cost of debt financing. hen calculating the cost of "debt financing", a company needs to adjust its RRR for taxes since interest on debt is tax deductible. C. When calculating the cost of "debt financing", a company does not need to adjust its RRR for interest on D. None of the statements are correct. debt since interest is not tax deductible.

Explanation / Answer

Statement B is correct.

A is incorrect because cost of retained earnings is much higher than cost of debt and it is not free.

C is incorrect because interest on debt is tax deductible.

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