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Test: Dividend Policy - B Com MCQ


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10 Questions MCQ Test - Test: Dividend Policy

Test: Dividend Policy for B Com 2024 is part of B Com preparation. The Test: Dividend Policy questions and answers have been prepared according to the B Com exam syllabus.The Test: Dividend Policy MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Dividend Policy below.
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Test: Dividend Policy - Question 1
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What is the primary purpose of issuing bonus shares by a company?

Detailed Solution for Test: Dividend Policy - Question 1
The primary purpose of issuing bonus shares by a company is to reward shareholders without affecting the company's liquidity. Bonus shares are issued by capitalizing a part of the company's profits and reserves, which are distributed among existing shareholders free of cost. This allows shareholders to benefit from the company's success without receiving cash dividends, and it helps in retaining capital within the company for future growth and investments.
Test: Dividend Policy - Question 2
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What effect does the issuance of bonus shares have on a company's market price per share?

Detailed Solution for Test: Dividend Policy - Question 2
The issuance of bonus shares decreases the market price per share. This is because the total number of shares increases while the overall market capitalization remains the same. As a result, the price per share is reduced, making the shares more affordable for investors.
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Test: Dividend Policy - Question 3
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Why do some investors consider stock splits as a buying indicator?

Detailed Solution for Test: Dividend Policy - Question 3
Some investors consider stock splits as a buying indicator because stock splits make shares more affordable. When a company's stock price is split, the price per share decreases, making it more accessible to a broader range of investors. This increased affordability can attract new investors and drive up demand for the stock.
Test: Dividend Policy - Question 4
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How does a stock split affect the ownership structure of a company?
Detailed Solution for Test: Dividend Policy - Question 4
A stock split dilutes the ownership of existing shareholders. While the number of shares held by each shareholder increases, their proportional ownership of the company decreases. This means that each shareholder holds a smaller percentage of the company's total ownership after a stock split.
Test: Dividend Policy - Question 5
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What role does the perception of investors play in the decision to issue bonus shares?
Detailed Solution for Test: Dividend Policy - Question 5
The perception of investors plays a significant role in the decision to issue bonus shares. When investors perceive a company's stock positively due to the issuance of bonus shares, it can boost investor confidence and attract more investments. This, in turn, may encourage companies to issue bonus shares as a way to improve their image in the capital market.
Test: Dividend Policy - Question 6
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Which factor determines the increase in paid-up capital when bonus shares are issued?
Detailed Solution for Test: Dividend Policy - Question 6
The increase in paid-up capital when bonus shares are issued is determined by the company's profits and reserves. Bonus shares are issued by capitalizing a portion of the company's accumulated profits and reserves, which are then converted into additional shares. This process results in an increase in the company's paid-up capital without any monetary transaction.
Test: Dividend Policy - Question 7
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What impact does the issuance of bonus shares have on a company's earnings per share (EPS)?
Detailed Solution for Test: Dividend Policy - Question 7
The issuance of bonus shares decreases the company's earnings per share (EPS). This is because the total earnings of the company remain the same, but the number of outstanding shares increases due to the bonus issue. As a result, the earnings are distributed among a larger number of shares, leading to a decrease in EPS.
Test: Dividend Policy - Question 8
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What is the significance of maintaining a stable dividend policy for shareholders?
Detailed Solution for Test: Dividend Policy - Question 8
Maintaining a stable dividend policy is significant for shareholders because it provides a reliable source of income for them. Shareholders who depend on dividends for income, such as retirees, widows, and economically weaker individuals, benefit from a consistent and predictable dividend payout. It helps meet their day-to-day living expenses and provides financial stability.
Test: Dividend Policy - Question 9
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In what circumstances do companies typically declare special dividends?
Detailed Solution for Test: Dividend Policy - Question 9
Companies typically declare special dividends when they experience abnormal profits. Special dividends are usually declared in exceptional circumstances when a company has generated significant profits beyond its regular earnings. It is a way to distribute these exceptional profits to shareholders.
Test: Dividend Policy - Question 10
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How does the issuance of bonus shares impact the market capitalization of a company?
Detailed Solution for Test: Dividend Policy - Question 10
The issuance of bonus shares has no effect on the market capitalization of a company. Market capitalization is determined by multiplying the market price per share by the total number of outstanding shares. When bonus shares are issued, the number of shares increases, but the market price per share decreases proportionally. Therefore, the overall market capitalization remains the same.
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