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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?
Assertion (A): Higher the flotation cost, less attractive the source.
Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.
- a)Both A and R are true and R is the correct explanation of A
- b)Both A and R are true, but R is not the correct explanation of A
- c)A is true, but R is false
- d)A is false, but R is true
Correct answer is option 'B'. Can you explain this answer?
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Direction: In the questions given below are two statements labelled a...
If the floatation cost is high, it will be more expensive for the company to raise funds, because the company ends up spending much higher money than it would if floatation cost less.
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Direction: In the questions given below are two statements labelled a...
Assertion (A): Higher the flotation cost, less attractive the source.
Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.
Explanation:
Flotation costs refer to the expenses incurred by a company when it raises funds through the issuance of securities such as equity shares or bonds. These costs include underwriting fees, legal fees, registration fees, and other expenses associated with the issuance process. The assertion states that higher the flotation cost, less attractive the source.
The reason given for this assertion is that the choice between the payment of dividend and retaining the earnings is affected by the difference in the tax treatment of dividends and capital gains. Let's analyze both the assertion and the reason.
Flotation Costs and Source Attractiveness:
Flotation costs represent a significant burden for a company when raising funds. These costs reduce the net proceeds received by the company and increase the cost of capital. Therefore, a higher flotation cost makes the source of funds less attractive for the company. This is because the company will have to bear additional expenses, resulting in a lower amount of funds available for investment or other purposes.
Choice between Dividend Payment and Retaining Earnings:
The reason given in the statement suggests that the choice between dividend payment and retaining earnings is influenced by the tax treatment of dividends and capital gains. Dividends are generally subject to taxation, either at the corporate level or at the individual level. On the other hand, capital gains may have different tax implications, depending on the jurisdiction and holding period.
The difference in tax treatment can impact the decision-making process of a company. If the tax rate on dividends is higher than the tax rate on capital gains, the company may choose to retain earnings instead of paying dividends. This is because retaining earnings allows the company to reinvest the funds internally and potentially generate higher returns for shareholders.
Conclusion:
Both the assertion and the reason are true in this case. Higher flotation costs make the source of funds less attractive, as they increase the cost of capital for the company. The tax treatment of dividends and capital gains can influence the choice between dividend payment and retaining earnings. If the tax rate on dividends is higher, the company may prefer to retain earnings to avoid higher tax liabilities. Therefore, both the assertion and the reason are true, and the reason correctly explains the assertion.
Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.
Explanation:
Flotation costs refer to the expenses incurred by a company when it raises funds through the issuance of securities such as equity shares or bonds. These costs include underwriting fees, legal fees, registration fees, and other expenses associated with the issuance process. The assertion states that higher the flotation cost, less attractive the source.
The reason given for this assertion is that the choice between the payment of dividend and retaining the earnings is affected by the difference in the tax treatment of dividends and capital gains. Let's analyze both the assertion and the reason.
Flotation Costs and Source Attractiveness:
Flotation costs represent a significant burden for a company when raising funds. These costs reduce the net proceeds received by the company and increase the cost of capital. Therefore, a higher flotation cost makes the source of funds less attractive for the company. This is because the company will have to bear additional expenses, resulting in a lower amount of funds available for investment or other purposes.
Choice between Dividend Payment and Retaining Earnings:
The reason given in the statement suggests that the choice between dividend payment and retaining earnings is influenced by the tax treatment of dividends and capital gains. Dividends are generally subject to taxation, either at the corporate level or at the individual level. On the other hand, capital gains may have different tax implications, depending on the jurisdiction and holding period.
The difference in tax treatment can impact the decision-making process of a company. If the tax rate on dividends is higher than the tax rate on capital gains, the company may choose to retain earnings instead of paying dividends. This is because retaining earnings allows the company to reinvest the funds internally and potentially generate higher returns for shareholders.
Conclusion:
Both the assertion and the reason are true in this case. Higher flotation costs make the source of funds less attractive, as they increase the cost of capital for the company. The tax treatment of dividends and capital gains can influence the choice between dividend payment and retaining earnings. If the tax rate on dividends is higher, the company may prefer to retain earnings to avoid higher tax liabilities. Therefore, both the assertion and the reason are true, and the reason correctly explains the assertion.
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer?
Question Description
Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer?.
Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for Commerce.
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ample number of questions to practice Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): Higher the flotation cost, less attractive the source.Reason (R): The choice between the payment of dividend and retaining the earnings is, to some extent, affected by the difference in the tax treatment of dividends and capital gains.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'B'. Can you explain this answer? tests, examples and also practice Commerce tests.
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