40+ Dividend Policy Questions and Answers

Dividend Policy in Financial Management Multiple Choice Questions Quiz:

Ques. Dividend Payout Ratio is:
(a) PAT Capital
(b) DPS ÷ EPS
(c) Pref. Dividend ÷ PAT
(d) Pref. Dividend ÷ Equity Dividend

Ans. (b)

Ques. In order to calculate EPS, Profit after Tax and Preference Dividend is divided by:
(a) MP of Equity Shares
(b) Number of Equity Shares
(c) Face Value of Equity Shares
(d) None of the above

Ans. (b)

Ques. __ measure what a company’s pays out to investors in the form of dividend
(a) return on equity
(b) dividend payout ratio
(c) book value

Answer. (b)

Ques. In case of ___ preference shares, the arrears of dividend are carried forward and paid out of the profits of the subsequent years.
(a) Participating
(b) Convertible
(c) Cumulative
(d) Redeemable

Ans. (c)

Ques. _____ Preference shares carry the right to cumulate the dividends
(a) Converted
(b) Cumulative
(c) Non-converted
(d) None

Ans. (b)

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Ques. MM Model of Dividend irrelevance uses arbitrage between
(a) Dividend and Bonus
(b) Dividend and Capital Issue
(c) Profit and Investment
(d)None of the above

Ans. (b)

Ques. MM Model argues that dividend is irrelevant as
(a) the value of the firm depends upon earning power
(b) the investors buy shares for capital gain
(c) dividend is payable after deciding the retained earnings
(d) dividend is a small amount

Ans. (a)

Ques. The dividend declared between two annual general meeting is called ……….
(a) Proposed Dividend
(b) Final Dividend
(c) Interim Dividend
(d) None of these

Ans. (c)

Ques. Dividend Payout Ratio is
(a) PAT ÷ Capital
(b) DPS ÷ EPS
(c)Pref. Dividend ÷ PAT
(d)Pref. Dividend ÷ Equity Dividend

Ans. (b)

Ques. Dividend declared by a company must be paid in
(a) 20 days
(b) 30 days
(c) 32 days
(d) 42 days

Ans. (a)

Ques. Residuals Theory argues that dividend is a
(a) Relevant Decision
(b) Active Decision
(c) Passive Decision
(d) Irrelevant Decision

Ans. (c)

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Ques. Dividend irrelevance argument of MM Model is based on:
(a) Issue of Debentures
(b) Issue of Bonus Share
(c) Arbitrage
(d) Hedging

Ans. (c)

Ques. Gordon’s Model of dividend relevance is same as
(a) No-growth Model of equity valuation
(b) Constant growth Model of equity valuation
(c) Price-Earning Ratio
(d) Inverse of Price Earnings Ratio

Ans. (b)

Ques. Every company should follow
(a) High Dividend Payment
(b) Low Dividend Payment
(c) Stable Dividend Payment
(d) Fixed Dividend Payment

Ans. (c)

Ques. Profit available for dividend distribution is called ___
(a) Capital profit
(b) Divisible profit
(c) Capital Reserve
(d) None of these

Ans. (b)

Ques. Which of the following stresses on investor’s preference reorient dividend than higher future capital gains ?
(a) Walter’s Model
(b) Residuals Theory
(c) Gordon’s Model
(d) MM Model

Ans. (c)

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Ques. Walter’s Model suggests that a firm can always increase i.e. of the share by
(a) Increasing Dividend
(b) Decreasing Dividend
(c) Constant Dividend
(d) None of the above

Ans. (d)

Ques. Which of the following is not true for MM Model?
(a) Share price goes up if dividend is paid
(b) Share price goes down if dividend is not paid
(c) Market value is unaffected by Dividend policy
(d) All of the above

Ans. (c)

Ques. Which of the following represents passive dividend policy ?
(a) that dividend is paid as a % of EPS
(b) that dividend is paid as a constant amount
(c) that dividend is paid after retaining profits for reinvestment
(d) all of the above

Ans. (c)

Ques. __ is the dividend declared in the annual general meeting of shareholders.
(a) Proposed Dividend
(b) Final Dividend
(c) Interim Dividend
(d) None of these

Ans. (b)

Ques. Dividend Distribution Tax is payable by
(a) Shareholders to Government
(b) Shareholders to Company
(c) Company to Government
(d) Holding to Subsidiary Company

Ans. (c)

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Ques. In India, Dividend Distribution tax is paid on
(a) Equity Share
(b) Preference Share
(c) Debenture
(d) Both (a) and (b)

Ans. (d)

Ques. Unclaimed dividend is shown in the balance sheet under the head ……..
(a) Reserves and Surplus
(b) Current Liabilities
(b) Loans and Advances
(d) Current Assets

Ans. (b)

Ques. If the following is an element of dividend policy?
(a) Production capacity
(b) Change in Management
(c) Informational content
(d) Debt service capacity

Ans. (c)

Ques. Cumulative preference share holders have voting right if dividend are in arrears for years
(a) 1
(b) 2
(c) 3
(d) 4

Ans. (b)

Ques. The net profit available for dividend distribution is called __
(a) Net Profit
(b) Surplus
(c) Divisible Profit
(d) Capital Profit

Ans. (c)

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Ques. These shares have a preferential right to the payment of dividend and to the return of capital at the time of winding up of the company.
(a) Equity share
(b) Preference share
(c) Bonus share
(d) None of the above

Answer. (b)

Ques. Dividends are usually paid as a percentage of ______
(a) Authorized share capital
(b) Net profit
(c) Paid-up capital
(d) Called-up capital

Ans. (c)

40+ Dividend Policy Questions and Answers - Examsegg (2024)

FAQs

What is the most appropriate dividend policy? ›

A stable dividend policy is the easiest and most commonly used. The goal of this policy is to provide shareholders with a steady and predictable dividend payout each year, which is what most investors seek. Investors receive a dividend regardless of whether earnings are up or down.

What is the formula for dividend policy? ›

Formula and Calculation of Dividend Payout Ratio

The dividend payout ratio can be calculated as the yearly dividend per share divided by the earnings per share (EPS), or equivalently, the dividends divided by net income (as shown below).

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What are the problems with the dividend policy? ›

The irregular dividend policy is used by companies that do not enjoy a steady cash flow or lack liquidity. Investors who invest in a company that follows the policy face very high risks as there is a possibility of not receiving any dividends during the financial year.

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What is the Gordon model of dividend policy? ›

The Gordon Growth Model – otherwise described as the dividend discount model – is a stock valuation method that calculates a stock's intrinsic value. Therefore, this method disregards current market conditions. Investors can then compare companies against other industries using this simplified model.

What is the rule 3 of dividend rules? ›

Rule 3 of Dividend Rules prescribes the conditions to be complied with for declaring dividend out of reserves. A pertinent question here is – whether a company can declare dividend out of 100% of the amount that has been transferred to General Reserve.

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What is the rule 3 of payment of dividends? ›

Rule 3 specifies that in the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves.

What is a good dividend yield? ›

What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment. Your own investment goals should also play a big role in deciding what a good dividend yield is for you.

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What are the two main theories of dividends? ›

1. Irrelevance Theory : According to irrelevance theory dividend policy do not affect value of firm, thus it is called irrelevance theory. 2. Relevance Theory : According to relevance theory dividend policy affects value of firm, thus it is called relevance theory.

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What are the four types of dividends? ›

A few common types of dividends include:

Cash dividends. These are the most common types of dividends and are paid out by transferring a cash amount to the shareholders. ...
Stock dividends. ...
Scrip dividends. ...
Property dividends. ...
Liquidating dividends.

What is an example of a stable dividend policy? ›

Stable dividend policy

For example, if a payout rate of 8% is set, then that's the percentage of profits that the company will pay out, regardless of its performance during the financial year.

Why are policy dividends not taxable? ›

Life insurance policy dividends are returns on premiums that a policyholder receives from the insurance company when it has surplus earnings. As a general rule, life insurance policy dividends are not taxable as these are considered as return of premium.

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What is Walter's theory of dividend policy? ›

Walter Model Formula

The share price relies on two facets: dividends and retained earnings. According to the Model's theory, the share price (P) equals the sum of the current dividend per share (D) plus a portion of the contrast among earnings per share (E) and the dividend (E - D).

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What is Walter formula? ›

Walter's Model Formula

According to Walter's Model Formula, the market value of a share can be given as: P = D + (E-D) ( r/k ) / k. Here, P = The value of the share price on every equity (price per equity share)

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What is Walter's model of dividend? ›

Walter's suggested that there is positive relationship between dividend policy and value of the firm. According to this model, the rate of return, i.e., 'r', and cost of capital i.e., 'k' plays a significant role in achieving ultimate goal of wealth maximisation of shareholders.

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What is the best strategy for dividend investing? ›

Top tips for investing in dividend stocks

Find sustainable dividends. Finding a sustainable dividend is one of the surest ways to avoid loss, which is the No. ...
Reinvest those dividends. ...
Avoid the highest yields. ...
Look for dividend growth. ...
Buy and hold for the long term.

Jan 12, 2024

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What is the most popular type of dividend? ›

Cash dividends

These are the most common types of dividends and are paid out by transferring a cash amount to the shareholders. These dividends are usually paid on a quarterly basis, although some companies may opt for a monthly, semiannual, or one-time lump-sum payment.

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What is a normal dividend policy? ›

Regular/Fixed Dividend Policy

It essentially means that regardless of whether the company makes money or not, they'll pay out dividends. It's a fixed dividend payout amount that doesn't change whether the company experiences losses or profits.

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What is a healthy dividend cover? ›

Generally, a dividend cover of 2 or more is considered a safe coverage, as it allows the company to safely pay out dividends and still allow for reinvestment or the possibility of a downturn.

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40+ Dividend Policy Questions and Answers - Examsegg (2024)

Dividend Policy in Financial Management Multiple Choice Questions Quiz:

FAQs

What is the most appropriate dividend policy? ›

What is an example of a stable dividend policy? ›