The Marginal Principle of Retained Earnings Means That Each Potential

question 92

Multiple Choice

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

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

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Definitions:

First-in

This principle dictates that the earliest goods to be added to inventory are the first ones to be removed from it, commonly applied in financial and inventory management.

Conversion Costs

The sum of labor and overhead costs that are necessary to convert raw materials into finished products.

Equivalent Units

Equivalent units is a concept in cost accounting used to allocate costs to partially completed goods, converting them into the amount of finished goods units.

Weighted-average

A calculation that takes into account the varying degrees of importance or quantities of different items in a data set, providing a figure that reflects their proportional contributions.