40+ Dividend Policy Questions and Answers

Dividend Policy in Financial Management Multiple Choice Questions Quiz:

Ques. Dividend Payout Ratio is:
(a) PAT Capital
(b) DPS ÷ EPS
(c) Pref. Dividend ÷ PAT
(d) Pref. Dividend ÷ Equity Dividend

Ans. (b)

Ques. In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:
(a) MP of Equity Shares
(b) Number of Equity Shares
(c) Face Value of Equity Shares
(d) None of the above

Ans. (b)

Ques. __ measure what a company’s pays out to investors in the form of dividend
(a) return on equity
(b) dividend payout ratio
(c) book value

Answer. (b)

Ques. In case of ___ preference shares, the arrears of dividend are carried forward and paid out of the profits of the subsequent years.
(a) Participating
(b) Convertible
(c) Cumulative
(d) Redeemable

Ans. (c)

Ques. _____ Preference shares carry the right to cumulate the dividends
(a) Converted
(b) Cumulative
(c) Non-converted
(d) None

Ans. (b)

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Ques. MM Model of Dividend irrelevance uses arbitrage between
(a) Dividend and Bonus
(b) Dividend and Capital Issue
(c) Profit and Investment
(d)None of the above

Ans. (b)

Ques. MM Model argues that dividend is irrelevant as
(a) the value of the firm depends upon earning power
(b) the investors buy shares for capital gain
(c) dividend is payable after deciding the retained earnings
(d) dividend is a small amount

Ans. (a)

Ques. The dividend declared between two annual general meeting is called ……….
(a) Proposed Dividend
(b) Final Dividend
(c) Interim Dividend
(d) None of these

Ans. (c)

Ques. Dividend Payout Ratio is
(a) PAT ÷ Capital
(b) DPS ÷ EPS
(c)Pref. Dividend ÷ PAT
(d)Pref. Dividend ÷ Equity Dividend

Ans. (b)

Ques. Dividend declared by a company must be paid in
(a) 20 days
(b) 30 days
(c) 32 days
(d) 42 days

Ans. (a)

Ques. Residuals Theory argues that dividend is a
(a) Relevant Decision
(b) Active Decision
(c) Passive Decision
(d) Irrelevant Decision

Ans. (c)

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Ques. Dividend irrelevance argument of MM Model is based on:
(a) Issue of Debentures
(b) Issue of Bonus Share
(c) Arbitrage
(d) Hedging

Ans. (c)

Ques. Gordon’s Model of dividend relevance is same as
(a) No-growth Model of equity valuation
(b) Constant growth Model of equity valuation
(c) Price-Earning Ratio
(d) Inverse of Price Earnings Ratio

Ans. (b)

Ques. Every company should follow
(a) High Dividend Payment
(b) Low Dividend Payment
(c) Stable Dividend Payment
(d) Fixed Dividend Payment

Ans. (c)

Ques. Profit available for dividend distribution is called ___
(a) Capital profit
(b) Divisible profit
(c) Capital Reserve
(d) None of these

Ans. (b)

Ques. Which of the following stresses on investor’s preference reorient dividend than higher future capital gains ?
(a) Walter’s Model
(b) Residuals Theory
(c) Gordon’s Model
(d) MM Model

Ans. (c)

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Ques. Walter’s Model suggests that a firm can always increase i.e. of the share by
(a) Increasing Dividend
(b) Decreasing Dividend
(c) Constant Dividend
(d) None of the above

Ans. (d)

Ques. Which of the following is not true for MM Model?
(a) Share price goes up if dividend is paid
(b) Share price goes down if dividend is not paid
(c) Market value is unaffected by Dividend policy
(d) All of the above

Ans. (c)

Ques. Which of the following represents passive dividend policy ?
(a) that dividend is paid as a % of EPS
(b) that dividend is paid as a constant amount
(c) that dividend is paid after retaining profits for reinvestment
(d) all of the above

Ans. (c)

Ques. __ is the dividend declared in the annual general meeting of shareholders.
(a) Proposed Dividend
(b) Final Dividend
(c) Interim Dividend
(d) None of these

Ans. (b)

Ques. Dividend Distribution Tax is payable by
(a) Shareholders to Government
(b) Shareholders to Company
(c) Company to Government
(d) Holding to Subsidiary Company

Ans. (c)

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Ques. In India, Dividend Distribution tax is paid on
(a) Equity Share
(b) Preference Share
(c) Debenture
(d) Both (a) and (b)

Ans. (d)

Ques. Unclaimed dividend is shown in the balance sheet under the head ……..
(a) Reserves and Surplus
(b) Current Liabilities
(b) Loans and Advances
(d) Current Assets

Ans. (b)

Ques. If the following is an element of dividend policy?
(a) Production capacity
(b) Change in Management
(c) Informational content
(d) Debt service capacity

Ans. (c)

Ques. Cumulative preference share holders have voting right if dividend are in arrears for years
(a) 1
(b) 2
(c) 3
(d) 4

Ans. (b)

Ques. The net profit available for dividend distribution is called __
(a) Net Profit
(b) Surplus
(c) Divisible Profit
(d) Capital Profit

Ans. (c)

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Ques. These shares have a preferential right to the payment of dividend and to the return of capital at the time of winding up of the company.
(a) Equity share
(b) Preference share
(c) Bonus share
(d) None of the above

Answer. (b)

Ques. Dividends are usually paid as a percentage of ______
(a) Authorized share capital
(b) Net profit
(c) Paid-up capital
(d) Called-up capital

Ans. (c)

40+ Dividend Policy Questions and Answers - Examsegg (2024)

FAQs

What is a 40% dividend policy? ›

Answer and Explanation: The dividend payout policy indicates that 40% of annual net income will be distributed to shareholders in terms of dividends. With that being said, 60% of the net income is reinvested in the existing operation to finance its business growth in the future.

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What is the formula for dividend policy? ›

Formula and Calculation of Dividend Payout Ratio

The dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share (EPS), or equivalently, the dividends divided by net income (as shown below).

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What are the four types of dividend policy? ›

There are four major types of dividend policies: regular dividend, irregular dividend, stable dividend, and no dividend. Dividend policies dictate how a company decides to distribute its earnings to its shareholders.

What is a dividend policy pdf? ›

Dividend policy is defined as the tradeoff between retaining earnings on the one hand and paying out cash on the other hand.

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What is the 45 day rule for dividends? ›

The 45 day rule (sometimes called dividend stripping) requires shareholders to have held the shares 'at risk' for at least 45 days (plus the purchase day and sale day) in order to be eligible to claim franking credits in their tax returns.

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What is the 90 day rule for dividends? ›

Preferred stocks have a different holding period from common stocks, and investors must hold preferred stocks for more than 90 days during a 181-day period that starts 90 days before the ex-dividend date.2 The holding period requirements are somewhat different for mutual funds.

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What is the rule 3 of dividend rules? ›

Rule 3 of Dividend Rules prescribes the conditions to be complied with for declaring dividend out of reserves. A pertinent question here is – whether a company can declare dividend out of 100% of the amount that has been transferred to General Reserve.

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What are the three theories of dividend policy? ›

There are three theories: Dividends are irrelevant: Investors don't care about payout. Bird in the hand: Investors prefer a high payout. Tax preference: Investors prefer a low payout, hence growth.

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What is the best dividend policy? ›

A stable dividend policy is the easiest and most commonly used. The goal of this policy is to provide shareholders with a steady and predictable dividend payout each year, which is what most investors seek. Investors receive a dividend regardless of whether earnings are up or down.

What are the problems with dividend policies? ›

Growth vs. Income: Dividend policy decisions also involve a trade-off between providing income to shareholders through dividends and retaining earnings for reinvestment in the company's growth. Companies must strike a balance between rewarding shareholders and funding future projects and expansions.

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What is a zero payout dividend policy? ›

Under the no-dividend policy, the company doesn't distribute dividends to shareholders. It is because any profits earned are retained and reinvested into the business for future growth.

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What are the two most common types of dividends? ›

A dividend is a distribution of a portion of a company's earnings, decided by the board of directors. The purpose of dividends is to return wealth back to the shareholders of a company. There are two main types of dividends: cash and stock.

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What is the ratchet pattern of dividends? ›

The ratchet effect means that firms raise dividend payouts more readily than they lower them (Fama and Babiak, 1968; Lintner, 1956; Marsh and Merton, 1987) – i.e. dividends carry out information regarding the likely path of future earnings.

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What is the Gordon model of dividend policy formula? ›

Gordon Growth Model Share Price Calculation

The formula consists of taking the DPS in the period by (Required Rate of Return – Expected Dividend Growth Rate). For example, the value per share in Year is calculated using the following equation: Value Per Share ($) = $5.15 DPS ÷ (8.0% Ke – 3.0% g) = $103.00.

What does 40% dividend mean? ›

Dividend is that portion of profit which is distributed to shareholders. Paid-up capital means the total amount of called up share capital which is actually paid to the company by the members. Dividend is declared on the paid-up form of capital. Thus the company will provide dividend of 40% on paid-up capital.

How does a dividend policy work? ›

A dividend policy is a company's strategy to return profits back to its shareholders or owners. If a company is in a growth phase, it may decide to retain more profits to fund research and development, whereas a mature or stable company may decide to return more profits to its owners.

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What does a 20% stock dividend mean? ›

If a stock is trading at $100 a share and pays a dividend of $5 each quarter (or $20 a year), the dividend rate is 20%. A dividend payout ratio, meanwhile, indicates what percentage of a company's earnings is being paid out in dividends.

What does 30% dividend mean? ›

Dividends are a post-tax appropriation and is paid out to shareholders and expressed either in rupee terms or in percentage terms. For example if the face value of the stock is Rs. 10 and the company announces 30% dividend then it means that a dividend of Rs. 3 per share will be paid out to shareholders.

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40+ Dividend Policy Questions and Answers - Examsegg (2024)

Dividend Policy in Financial Management Multiple Choice Questions Quiz:

FAQs

What is a 40% dividend policy? ›

What is a zero payout dividend policy? ›