The marginal principle of retained earnings means that each potential project to be financed by retained earnings must:

A. yield a return equal to or greater than the marginal cost of capital. B. have an internal rate of return greater than the corporate growth rate of dividends. C. provide enough return to pay the corporation's marginal tax rate. D. provide a higher rate of return than the stockholders can achieve after paying taxes on the distributed dividends.

Question

Business

Susan Rowe

10 March, 01:55

The marginal principle of retained earnings means that each potential project to be financed by retained earnings must:

A. yield a return equal to or greater than the marginal cost of capital. B. have an internal rate of return greater than the corporate growth rate of dividends. C. provide enough return to pay the corporation's marginal tax rate. D. provide a higher rate of return than the stockholders can achieve after paying taxes on the distributed dividends.

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Answers (1)

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Ivy Cummings · Answer 1

The correct answer is D

Explanation:

Marginal principle is the principle which is referred to an increase in the activity level when the marginal advantage exceeds or more than the marginal cost.

So, the marginal principle of retained earnings would be when it will provide the higher rate of return than the shareholders who could achieve after paying taxes on the dividends.