Cost of Retained Earning: - It is on occasion argued that retained earnings carry no cost since a firm isn't required to pay dividend on retained earnings. Nevertheless this isn't true. Though retained earnings don't have any explicit cost to the firm but they involve an opportunity cost. The cost of retained earning is able to be calculated as follows:
Kr = Ke (1-Percentage Brokerage or Flotation Cost)
Where Kr = Cost of Retained Earnings
Ke = Cost of Equity Capital