Dividend Policy Decisions
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Questions and Answers

What is the implication of the assumption that there is no change in the business risk position and the rate of return?

  • The investment policy of the company may change.
  • The company's dividend policy is affected.
  • There is no change in the capital structure of the company.
  • The rate of return on investment remains constant. (correct)

    • What is the significance of stability of dividends?

  • It has no effect on the firm's capital structure.
  • It shows the poor health of the firm.
  • It indicates the inconsistency in the stream of dividend payments.
  • It is a sign of good health of the firm and may take various forms. (correct)

    • What is the effect of stock dividend or bonus shares on the total net worth of the firm?

  • It has no effect on the total net worth of the firm. (correct)
  • It decreases the total net worth of the firm.
  • It is uncertain and depends on various factors.
  • It increases the total net worth of the firm.

    • Which of the following is a characteristic of the assumptions in the dividend policy?

    <p>The absence of taxes and transaction costs.</p> Signup and view all the answers

    What is the purpose of stock dividend or bonus shares?

    <p>To increase the number of outstanding shares of the firm.</p> Signup and view all the answers

    What is the relationship between the reserves and surplus, and the share capital, after the stock dividend or bonus shares?

    <p>The reserves and surplus are transferred to the share capital.</p> Signup and view all the answers

    What is the implication of the assumption that the dividends and profits of the firm have no risk?

    <p>This assumption was dropped at a later stage.</p> Signup and view all the answers

    What is the significance of constant dividend per share?

    <p>It is a form of stability of dividends.</p> Signup and view all the answers

    What is the effect of stock dividend or bonus shares on the firm's capital structure?

    <p>It has no effect on the firm's capital structure.</p> Signup and view all the answers

    What is the assumption about the size of the investors in the dividend policy?

    <p>No single investor is large enough to influence the share value.</p> Signup and view all the answers

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