In order to maximize shareholder value,a corporation must earn a higher rate of return on a dollar that is retained in the corporation than the shareholders can earn by investing the dollar elsewhere.

Question

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This is a commonly accepted principle of corporate finance. If a corporation is not earning a higher rate of return on its retained earnings compared to what shareholders can earn by investing in other opportunities, then it may be better for the corporation to distribute those earnings to shareholders as dividends or to invest in other opportunities with higher potential returns.

In Order to Maximize Shareholder Value,a Corporation Must Earn a Higher