The cheapest source of finance is (2024)

FAQs

The cheapest source of finance is? ›

Retained earning is the cheapest source of finance.

d The cheapest source of finance is retained earnings. Retained income refers to that portion of net income or profits of an organisation that it retains after paying off dividends.

Debt is nearly always cheaper than equity. Debt is fixed term, and you have after-tax cost of capital, making it even cheaper. It is also non-dilutive.

Ans: (d) Retained earnings are the cheapest source of finance. Retained income is the portion of an organization's net income or profits that it keeps after paying dividends. An organization's retained earnings or profits can be reinvested for the purposes of expansion, modernization, and so on.

The cost of finance. Debt finance is usually cheaper than equity finance.

Preference Share is the Costliest Long - term Source of Finance. The costliest long term source of finance is Preference share capital or preferred stock capital. It is the source of the finance.

Affordable housing financing is the process by which a public or private entity secures capital to pay for the building, maintenance, and/or renovation costs of affordable units. Affordable hous- ing by its very nature cannot be sustained without financial subsidy.

Of course, a company's owners want it to be successful and provide the equity investors with a good return on their investment, but without required payments or interest charges, as is the case with debt financing. Equity financing places no additional financial burden on the company.

Finally, pure discount loans are perhaps the simplest form of loans. In these, the borrower takes out an upfront loan and pays nothing until the end of the loan period, at which point they pay back the full principal of the loan plus a predefined amount of interest.

Why is retained profit cheap? ›

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).

Retained earnings are an easy source of financing

Hence, when your business keeps its retained profits, it builds a safety net by providing liquidity for low revenue situations. During any emergency condition, your business would have funds to keep operations on and make basic payments.

What is retained profit? Retained profit, or retained earnings, is the portion of a business' earnings that it keeps after taking shareholder dividends into account. It is calculated using net income, net income brought forward, and dividends (cash and stock).

A source or sources of finance, refer to where a business gets money from to fund their business activities. A business can gain finance from either internal or external sources.

Overdrafts are a very flexible form of finance which, with a healthy income in your business, can be paid off more quickly than a formal loan.

The cost of retained earnings is lower than the cost of external equity in the presence of flotation costs. In the presence of flotation costs the cost of external equity is less than the retained earnings.

Retained earnings are better than other sources of finance because:Retained earnings is a permanent source of funds which an organization can avail of.It enhances capacity of the business to absorb unexpected losses.It does not involve any explicit cost in the form of interest dividend or flotation cost.It may increase ...

Retained profits have several major advantages: They are cheap (though not free) – effectively the "cost of capital" of retained profits is the opportunity cost for shareholders of leaving profits in the business (i.e. the return they could have obtained elsewhere)

Borrowing money will always be more expensive than using retained earnings.