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Which of the following affects the Dividend Decision of a company?
  • a)
    Taxation Policy
  • b)
    Cash Flow Position
  • c)
    Earnings
  • d)
    All of these
Correct answer is option 'D'. Can you explain this answer?
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Which of the following affects the Dividend Decision of a company?a)Ta...
This is so because a company' realise the every ascept of company it totally depends on the other factors of income like earning cash inflow outflow and taxation policy
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Which of the following affects the Dividend Decision of a company?a)Ta...
Dividend Decision and its Factors

Factors affecting the Dividend Decision of a company include:


  • Taxation Policy: The taxation policy imposed by the government can influence a company's dividend decision. Higher tax rates on dividends may discourage companies from paying higher dividends to shareholders.

  • Cash Flow Position: The cash flow position of a company plays a significant role in determining its dividend decision. A company needs to have sufficient cash inflows to cover its dividend payments. If the company's cash flow is weak, it may choose to retain earnings instead of distributing them as dividends.

  • Earnings: The profitability and earnings of a company also impact its dividend decision. Companies with higher earnings are more likely to distribute higher dividends to their shareholders.


Conclusion:

All of the above factors, including taxation policy, cash flow position, and earnings, affect the dividend decision of a company. These factors need to be carefully considered by company management when determining the dividend payout to shareholders.
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Direction: Read the following text and answer the following questions on the basis of the same:Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose, the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Instead of issuing 10% debenture the company can issue equity shares for raising the funds. The financial manager of the company would normally opt for a source which is the cheapest.Q. The financing decisions are affected by various factors. Which one of the following factor is discussed in the above case?

Direction: Read the following text and answer the questions given below:‘Spun Ltd.’ is a company manufacturing cotton Yarn for the past 15 years. It has been consistently earning good profits for many years and is a market leader. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future as the demand for its products has been consistently increasing. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices and has been able to maintain the same for the past several years.It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of ₹ 40 lakhs from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.Q. ‘There is availability of enough cash in the company.’ This statement represents which factor affecting the dividend decision of Spun Ltd.?

Direction: Read the following text and answer the questions given below:‘Spun Ltd.’ is a company manufacturing cotton Yarn for the past 15 years. It has been consistently earning good profits for many years and is a market leader. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future as the demand for its products has been consistently increasing. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices and has been able to maintain the same for the past several years.It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of ₹ 40 lakhs from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.Q. ‘It has been consistently earning good profits for many years’. This statement represents which factor affecting the dividend decision of Spun Ltd.?

Direction: Read the following text and answer the questions given below:‘Spun Ltd.’ is a company manufacturing cotton Yarn for the past 15 years. It has been consistently earning good profits for many years and is a market leader. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future as the demand for its products has been consistently increasing. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices and has been able to maintain the same for the past several years.It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of ₹ 40 lakhs from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company.Q. ‘It has taken a loan of ₹ 40 Lakhs from ICICI and is bound by certain restrictions on the payment of dividend according to the terms of loan agreement.’ This statement represents which factor affecting the dividend decision of Spun Ltd.?

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Which of the following affects the Dividend Decision of a company?a)Taxation Policyb)Cash Flow Positionc)Earningsd)All of theseCorrect answer is option 'D'. Can you explain this answer?
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