Use of the marginal cost of capital: S acknowledges that when retained earnings is used up as a source of equity the cost of capital lowers as new common stock is sold to support more growth. O recognizes that the return from the last dollar of funds generated should be less than the cost of the last dollar of funds raised. o acknowledges that when retained earnings is used up as a source of equity the cost of capital rises as new common stock is sold to support more growth. recognizes that the return from the last dollar of funds generated should be more than the cost of the last dollar of funds raised