The marginal principle of retained earnings states that the corporation must be able to earn a higher return on retained earnings than shareholders could receive for themselves after paying taxes on the distributed dividends.

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The marginal principle of retained earnings indeed states that the corporation must be able to earn a higher return on retained earnings than shareholders could receive for themselves after paying taxes on the distributed dividends. This principle ensures that retaining the earnings is the better option for the corporation and its shareholders than distributing them as dividends.

The Marginal Principle of Retained Earnings States That the Corporation