MANAGEMENT

Detailed explanation-1: -In other words, using retained earnings is a form of equity finance because it takes money from shareholders. Since it equity finance, it should be priced at the cost of equity.

Detailed explanation-2: -Money invested in equity shares offer manifold returns, higher than the rate of erosion of an individual’s purchasing power due to inflation. Thus, the real value of investments tends to rise over time. Investors having a low aptitude for risk tend to stick with debt instruments, as it is less volatile.

Detailed explanation-3: -Retained earnings increase when companies earn more, which allows them to tap into a higher pool of capital. When companies pay more to shareholders, retained earnings drop. These funds can be used to invest in projects and grow the business. Retained earnings provide several advantages for businesses.