The Marginal Principle of Retained Earnings Means That Each Potential

question 43

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 stockholders 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.

---

Definitions:

Amortized

The gradual reduction of a debt over time by making regular payments that cover both principal and interest.

Held-To-Maturity

Held-to-maturity refers to investment securities that a company has the intent and ability to hold until a specified maturity date.

GAAP

A collection of norms and guidelines utilized in the United States for the purposes of financial reporting and accounting, known as the Generally Accepted Accounting Principles.

Available-For-Sale

A classification of financial assets indicating that they are not held for trading purposes nor intended to be held to maturity, but are available for sale if needed.