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. (C)</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. (C)</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. (B)</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. (A)</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. (B)</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. (B)</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. (B)</p> Signup and view all the answers

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