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Dividend Policy 197: Managerial and Shareholder Perspectives

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Dividend Policy 197: Managerial and Shareholder Perspectives

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Questions and Answers

What is the main reason a company may choose to have an irregular dividend policy?

To maintain a consistent payout ratio

Due to uncertain earnings and lack of liquid resources (correct)

To avoid legal restrictions on dividend payments

To finance growth and working capital requirements

Which of the following is NOT a legal constraint on a company's dividend policy?

The company must maintain a minimum payout ratio (correct)

Loan agreements may restrict dividend payments

Dividends cannot be paid if they will impair the company's capital

Dividends must be paid out of current earnings

What is the primary reason a company may choose a 'no dividend' policy?

To increase shareholder goodwill

To avoid legal restrictions on dividend payments

To fund growth and working capital requirements (correct)

To maintain a consistent payout ratio

Which of the following is NOT a financial constraint on a company's dividend policy?

The need to comply with government regulations Signup and view all the answers

How does a company's 'regular dividend' policy help maintain shareholder goodwill?

It provides shareholders with a predictable income stream Signup and view all the answers

Which of the following is NOT a merit of a stable dividend policy?

It increases the company's debt burden. Signup and view all the answers

Under the 'constant payout ratio' approach of a stable dividend policy, what is paid as dividends?

A fixed percentage of the company's earnings as dividends. Signup and view all the answers

In the 'stable rupee dividend + extra dividend' approach, what is the purpose of the extra dividend?

To provide a 'bonus' to shareholders in years when the company had exceptionally high profits. Signup and view all the answers

Which of the following is NOT a type of stable dividend policy mentioned in the text?

Increasing dividend per share Signup and view all the answers

What is the purpose of creating a reserve fund under the 'constant dividend per share' approach?

To pay a fixed amount of dividend even in years when the company's earnings are low. Signup and view all the answers