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Dividend Policy Decisions: Understanding Shareholder Returns

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Questions and Answers

What is the implication of the assumption of no taxes in the capital market?

Taxes affect only capital gains
Dividends are taxed twice
Difference between capital gains and dividends is significant
There is no difference between capital gains and dividends (correct)

What is the result of the stability of dividends in a company?

The firm's health is uncertain
Sign of bad health of the firm
Sign of good health of the firm (correct)
No impact on the firm's health

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

It does not change the total net worth (correct)
It increases the total net worth
It is uncertain
It decreases the total net worth

What is the assumption about the business risk position of the company?

It remains the same (A) Signup and view all the answers

What is the implication of the assumption of infinite divisibility of securities?

Investors can buy fractions of shares (B) Signup and view all the answers

Why is the stock dividend or bonus shares issued?

To recapitalise the firm (B) Signup and view all the answers

What is the effect of the constant investment policy on the rate of return of the company?

It does not change the rate of return (B) Signup and view all the answers

What is the original assumption about the future investments of the company?

They are risk-free (C) Signup and view all the answers

What is the effect of the stock dividend or bonus shares on the number of outstanding shares of the firm?

It increases the number of outstanding shares (B) Signup and view all the answers

What is the implication of the assumption that no single investor is large enough to influence the share value?

No investor can influence the share value (A) Signup and view all the answers

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