MANAGEMENT

Detailed explanation-1: -Well, the answer is that cost of debt is cheaper than cost of equity. As debt is less risky than equity, the required return needed to compensate the debt investors is less than the required return needed to compensate the equity investors.

Detailed explanation-2: -Retained earnings are the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders. This represents the portion of the company’s equity that can be used, for instance, to invest in new equipment, R&D, and marketing.

Detailed explanation-3: -Following are some advantages of retained profit: They are inexpensive/cheap (not free): The cost of capital of retained profits is the opportunity cost for the shareholders to leave profits in the business (like they could get a return by leaving it in the business).