Explain why retained earnings have an associated opportunity cost.

Retained earnings are the amount of profit a company has left over after subsequent paying all its direct and indirect cost, income taxes and dividends to shareholders. This addresses the portion of the organization's equity that can be utilized.

Retained earnings belong to the shareholders as they are owners of the company. If put back into the company, the retained earnings acts as a further investment in the firm on behalf of the shareholders. Cost incurred on the rearined earnings of the company is similar to the retrun expected by the owners or shareholders of the company.It is called an opportunity cost because the shareholders penance an opportunity to invest the money for a return somewhere else and instead permit the firm to build capital.