Dividend policy-Quiz to check your knowledge!
Dividend policy can be understood as set of guidelines a company uses to decide how much of its earnings it will pay out to shareholders.Dividend refers to the business concerns net profits distributed among the shareholders. It may also be termed as the part of the profit of a business concern, which is distributed among its shareholders.
Dividend decision of the business concern is one of the crucial parts of the financial manager,because it determines the amount of profit to be distributed among shareholders and amount of profit to be treated as retained earnings for financing its long term growth. Hence,dividend decision plays very important part in the financial management.Dividend decision consists of two important concepts which are based on the relationship between dividend decision and value of the firm.
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Question 1 of 10
1. Question1 points
Which of the following is a payment of additional shares to shareholders in lieu of cash?Correct
Stock dividend is a dividend in lieu of cash dividend in which stock of the company is didtributed as dividend.Incorrect
Question 2 of 10
2. Question1 points
According to the residual theory of dividends, if the firmâ€™s equity need is less than the amount of retained earnings, the firm wouldCorrect
Companies that use the residual dividend policy first use the cash flow to fullfill necessary capital expenditures and the remaining amount available (the residual) is paid out to shareholders.Incorrect
Question 3 of 10
3. Question1 points
Which of the following are true of stock splits except?Correct
There is no effect on retainded earnings because of stock split.Incorrect
Question 4 of 10
4. Question1 points
The dividend-payout ratio is equal toCorrect
Dividend-payout ratio is equal to dividends per share divided by earnings per share.Incorrect
Question 5 of 10
5. Question1 points
A payment made by a firm made in the form of new shares of stock, rather than cash, is calledCorrect
Payment made by a firm made in the form of new shares of stock, rather than cash, is called stock dividend.Incorrect
Question 6 of 10
6. Question1 points
Modigliani and Miller argue that the dividend decisionCorrect
Modigliani and Miller argue that the dividend decision is relevant as the value of the firm is not based just on the earning power of its assets.Incorrect
Question 7 of 10
7. Question1 points
Retained earning areCorrect
Retained earnings are those earnings which are reatined after necessary deduction in past years.Incorrect
Question 8 of 10
8. Question1 points
When a firm is short of cash, still it considers to distribute something to shareholders, it should consider aCorrect
When a firm is short of cash, still it considers to distribute something to shareholders, it should consider a stock dividend as it does not require any cash.Incorrect
Question 9 of 10
9. Question1 points
The residual theory of dividends suggests that dividends are irrelevent to the value of the firmCorrect
As per residual theory of dividends suggests that dividends are irrelevent to the value of the firm.Incorrect
Question 10 of 10
10. Question1 points
Which of the following examples best represents a passive dividend policy?Correct
In passive dividend policy, firm pays dividends with what remains of net income after taking acceptable investment projects.Incorrect