The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of investors, and other factors.
a. True
b. False

FALSE

Explanation: Cost of equity is the return that a business organisation have to decide if the it will embark on a business based on the level of return on it capital investment.

The cost of equity refers two facets which are the INVESTOR AND THE BUSINESS.

For an investor the cost of equity is the rate of return required on an investment in equity.

For a Business entity, the cost of equity determines the required rate of return on a particular project or investment.

The cost of retained earnings shows the return that an investor expect to earn on his or her equity investment in the company. It can be derived using the CAPITAL ASSETS PRICING MODEL.