Asked by simra sohail on Jun 22, 2024
Verified
GM decides to build a new plant using retained earnings. All of the following are true except
A) GM's tangible capital will increase as a result.
B) GM is engaging in saving on behalf of its shareholders.
C) GM stock appreciates in value.
D) GM is avoiding experiencing opportunity costs.
Retained Earnings
The portion of net income that is not distributed to shareholders but instead reinvested back into the company.
Tangible Capital
Physical assets owned by a firm that are used in the production process, such as buildings, machinery, and equipment.
Opportunity Costs
The cost associated with not choosing the next best alternative in a decision-making process.
- Recognize the role and impact of retained earnings on corporate investment and shareholder value.
Verified Answer
RC
Ricker CarterJun 27, 2024
Final Answer :
D
Explanation :
The statement that GM is avoiding experiencing opportunity costs is incorrect. When GM decides to use retained earnings to build a new plant, it is choosing to invest in a specific project instead of other potential investments. This decision inherently involves opportunity costs, which are the benefits the company foregoes by not investing the retained earnings elsewhere.
Learning Objectives
- Recognize the role and impact of retained earnings on corporate investment and shareholder value.