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B Com Exam  >  B Com Tests  >  Accountancy and Financial Management  >  Test: Dividend Decision - B Com MCQ

Test: Dividend Decision - B Com MCQ


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10 Questions MCQ Test Accountancy and Financial Management - Test: Dividend Decision

Test: Dividend Decision for B Com 2024 is part of Accountancy and Financial Management preparation. The Test: Dividend Decision questions and answers have been prepared according to the B Com exam syllabus.The Test: Dividend Decision MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Dividend Decision below.
Solutions of Test: Dividend Decision questions in English are available as part of our Accountancy and Financial Management for B Com & Test: Dividend Decision solutions in Hindi for Accountancy and Financial Management course. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free. Attempt Test: Dividend Decision | 10 questions in 10 minutes | Mock test for B Com preparation | Free important questions MCQ to study Accountancy and Financial Management for B Com Exam | Download free PDF with solutions
Test: Dividend Decision - Question 1
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What does the term "dividend" refer to in the context of a business concern?

Detailed Solution for Test: Dividend Decision - Question 1
Dividend refers to the portion of a business concern's net profits that is distributed among its shareholders. It is the share of the profits that the company pays out to its shareholders as a return on their investment.
Test: Dividend Decision - Question 2
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In the context of dividend decision, what is the key role played by the financial manager?

Detailed Solution for Test: Dividend Decision - Question 2
The financial manager's role in dividend decision involves determining how much of the company's profits should be distributed to shareholders as dividends and how much should be retained for financing the company's long-term growth and expansion.
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Test: Dividend Decision - Question 3
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What are the key assumptions underlying Modigliani and Miller's approach to dividend irrelevance?

Detailed Solution for Test: Dividend Decision - Question 3
Modigliani and Miller's approach to dividend irrelevance is based on the assumptions of a perfect capital market, rational investors, and the absence of taxes. These assumptions form the basis of their argument that dividend policy doesn't affect the value of the firm.
Test: Dividend Decision - Question 4
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According to Modigliani and Miller's theory, what is the relationship between dividend policy and the value of a firm?
Detailed Solution for Test: Dividend Decision - Question 4
Modigliani and Miller's theory states that, under certain assumptions, dividend policy has no effect on the value of a firm. They argue that in a perfect market, dividend policy is irrelevant, and it does not influence the market price of shares.
Test: Dividend Decision - Question 5
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Which form of dividend is paid in the form of company stock, and is sometimes referred to as a "bonus issue"?
Detailed Solution for Test: Dividend Decision - Question 5
A stock dividend is paid to shareholders in the form of additional company shares rather than cash. This is often done to raise more finance for the company, and the issue of extra shares is sometimes called a "bonus issue."
Test: Dividend Decision - Question 6
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According to Walter's model, when does dividend policy affect the value of a firm?
Detailed Solution for Test: Dividend Decision - Question 6
According to Walter's model, dividend policy affects the value of a firm when the return on investment (r) is greater than the cost of capital (k). This indicates that if the firm can earn more by distributing earnings to shareholders, it should pay dividends.
Test: Dividend Decision - Question 7
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What factor does Walter's model focus on to determine the impact of dividend policy on the firm's value?
Detailed Solution for Test: Dividend Decision - Question 7
Walter's model focuses on the relationship between the rate of return (r) and the cost of capital (k) to determine how dividend policy affects the value of the firm. If r is greater than k, then distributing earnings as dividends is beneficial to shareholders.
Test: Dividend Decision - Question 8
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What is the key implication if a firm's return on investment (r) is equal to its cost of capital (k) according to Walter's model?
Detailed Solution for Test: Dividend Decision - Question 8
When a firm's return on investment (r) is equal to its cost of capital (k) according to Walter's model, it becomes indifferent whether earnings are retained or distributed as dividends. This implies that retaining earnings for growth or paying dividends would have the same effect on the value of the firm.
Test: Dividend Decision - Question 9
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According to the concept of dividend relevance, how does dividend policy relate to the value of the firm?
Detailed Solution for Test: Dividend Decision - Question 9
The concept of dividend relevance suggests that dividend policy does affect the value of the firm. It implies that shareholders prefer current dividends, and there is a direct relationship between dividend policy and the value of the firm.
Test: Dividend Decision - Question 10
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What is the purpose of a stock dividend, as described in the text?
Detailed Solution for Test: Dividend Decision - Question 10
A stock dividend is issued to shareholders to raise additional finance for the company. Instead of distributing cash, the company issues additional shares, which can potentially be sold in the market to generate funds for the company's activities.
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