Foundations Of Financial Management
Foundations Of Financial Management
17th Edition
ISBN: 9781260013917
Author: BLOCK, Stanley B., HIRT, Geoffrey A., Danielsen, Bartley R.
Publisher: Mcgraw-hill Education,
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Chapter 18, Problem 1DQ
Summary Introduction

To explain: The relation shared between the marginal principle of retained earnings and the returns that a shareholder might make on other investments.

Introduction:

Retained Earnings:

Retained earnings is a portion of the profits earned by a business not disbursed by the company as dividend to its shareholders so that it can be used for future investments.

Expert Solution & Answer
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Answer to Problem 1DQ

The marginal principle of retained earnings states that a company should perform an analysis of whether the company or stockholders earn more on the funds related to retained earnings.

Explanation of Solution

Explanation:

As per the marginal principle of retained earnings, the earnings that the stockholders would earn on other investments should also be considered. According to this principle, a company should analyze the earnings of company as well as shareholders to see who earns most on the funds associated with retained earnings.

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