Which of the following statements with respect to the WACC is correct? The required rate of return on outstanding common stocks is a reasonable estimate of the cost of retained earnings (opportunity cost) O None of the answers is correct Retain earnings are not included in the WACC, since they provide free funds to any company Since flotation costs reduce the WACC, most firms prefer to issue new stocks instead of retaining earnings Flotation costs are included in the WACC if the company uses internal funds (retained earnings) but are irrelevant if the company relies on external funds (new common stock)