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Dividend Decision Interview Questions & Answers - Learning Mode

Dividend Decision Interview Questions & Answers - Learning Mode

A dividend policy is a company's approach to distributing profits back to its owners or stockholders. It is a decision made by the directors of a company about the amount and timing of any cash payments made to the company?s stockholders. The Dividend Decision is an important part of the present day corporate world. The Dividend decision may determine the amount of taxation that stockholders pay.

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Dividend Decision Interview Questions & Answers - Learning Mode
Try Dividend Decision Interview Questions & Answers - Exam Mode
Question: State the significance of stability of dividend.

Answer: Following is the significance of stability of dividend:
1. Confidence among shareholders
2. Investors desire for current income
3. Institutional investor's requirements
4. Stability in market price of shares
5. Raising additional finances
6. Spreading of ownership of outstanding shares
7. Reduces the chances of loss of control
8. Market for debentures and preference shares Source:
Question: What is stock dividend?

Answer: Stock dividend is the dividend which is paid to the shareholders in kind. When stock dividends are paid, a portion of the surplus is transferred to the capital account and shareholders are issued additional share certificates. This dividend is declared to only equity shareholders. Source:
Question: List the forms of dividend.

Answer: 1. Scrip Dividend
2. Cash Dividend
3. Property Dividend
4. Bond Dividend
5. Stock Dividend Source:
Question: What do you mean by stability of dividend?

Answer: Stability or regularity of dividend is regarded as a desirable policy by the management of most business concerns. Most of the shareholders also prefer stable dividends because all other things being the same, stable dividends have a positive impact on the market price of the share. Stability of dividends sometimes means regularity in payment some dividend every, even though the amount of dividend may fluctuate from year - to- year. Source:
Question: What are bond dividends?

Answer: Sometimes the dividends are paid in bonds or notes than have a long enough term to fall beyond the current liability group. Payment is always postponed in bond dividends. Source:
Question: What is scrip dividends?

Answer: In this method of dividend, the shareholders are issued transferable promissory notes which may or may not be interest bearing. Scrip dividends are justified only when the company has really earned profit and has only to wait for the conversion of other current assets into cash in the course of operations. Source:
Question: State the disadvantages of stock dividend for company and for investors.

Answer: A. For Company
1. Issue of bonus shares leads to an increase in the capitalisation of the corporation.
2. Issue of bonus shares results in more liability on the company in respect of future dividends.
3. It prevents new investors from becoming the shareholders of the company.
4. Control over the management of the company is not diluted and the present management may misuse its position.
B. For Investors
1. Some shareholders prefer cash dividends instead of bonus shares. Such sh Source:
Question: What are property dividends?

Answer: This involves a payment with assets other than cash. This form of dividend may be followed wherever there are assets that are no longer necessary in the operation of the business. Source:
Question: State the objects of stock dividend.

Answer: Stock dividend may be issued by a company to serve certain objectives. They are as follows:
1. Conversion of cash
2. Lower rate of dividend
3. Financing expansion programmes
4. Transferring the formal ownership of surplus and reserves to the shareholders
5. Enhanced prestige
6. Widening share market
7. True presentation of earning capacity Source:
Question: What is cash dividend?

Answer: Cash dividend is the dividend which is distributed to the shareholders in cash out of the earnings of the business. Source:
Question: What is dividend policy?

Answer: Dividend is the portion of earnings which is distributed among the shareholders. In other words, dividend policy determines the division of earnings between payment to shareholders and retained earnings. Formulation of proper dividend policy is one of the major financial decisions to be taken by the financial managers. Source:
Question: State the advantages of stock dividend for issuing company and to the investors.

Answer: A. Advantages for issuing company:-
1. Maintenance of liquidity position
2. Satisfaction of shareholders
3. Economical issue of capitalisation
4. Remedy for undercapitalisation
5. Enhance prestige
6. Widening the share for market
7. Finance for expansion programmes
8. Conservation of control
B. Advantages to the Investors:-
1. Increase in their equity
2. Marketability of shares is increased
3. Increase in income
4. Increase demand for shares Source:
Question: State the determinants of dividend policy?

Answer: 1. Stability of earnings
2. Financing policy of the company
3. Liquidity of funds
4. Dividend policy of competitive concerns
5. Past dividend rates
6. Debt obligations
7. Ability to borrow
8. Growth needs of the company
9. Profit rates
10. Legal requirements
11. Policy of control
12. Corporate taxation policy
13. Tax position of shareholders
14. Effect of trade policy
15. Attitude of interested group Source:
Question: Explain in brief the types of stability of dividend or dividend practices.

Answer: 1. Constant dividend per share:- A number of companies follow the policy of paying a fixed amount per share as dividend every year, without considering the fluctuations in the earnings of the company.
2. Constant percentage of net earnings:- Some companies follow a dividend policy of constant payment ratio, i.e. paying a fixed percentage of net earnings as dividend will fluctuate in direct proportion to earnings of the company.
3. Small constant dividend per share plus extra dividend:- Und Source:
Question: Define bonus shares.

Answer: Bonus shares are additional shares given to the current shareholders without any additional cost base upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares. Source:


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