DIVIDEND THEORIES, POLICY AND DECISIONS
CHAPTER- 10
Review Questions...
A. OBJECTIVE TYPE AND MULTIPLE CHOICE QUESTIONS
1. Fill in the blanks:
(i) ________ is the distribution of profits of a company among its shareholders.
(ii) Dividend policy of a firm affects both the long-term financing and ________
(iii) ________ dividend promises to pay the shareholders at a future date.
(iv) ________ dividend is a usual method of paying dividend.
(v) According to ________ model, the dividend decision is irrelevant.
[Ans- (i) Dividend; (ii) Shareholders' wealth; (iii) Scrip; (iv) Cash; MM]
2. State whether the following statements are True or False:
(i) Payment of dividend involves legal as well as financial considerations.
(ii) Stock dividend affects liquidity position of the company.
(iii) MM model suggests that dividend decision affects the value of the firm.
(iv) In the opinion of Prof, Walter, the dividend policy will not affect the market price of shares if r =k.
(v) A company should follow an-ad-hoc dividend policy.
[Ans- (i) True; (ii) False; (iii) False; (iv) true; (v) False]
3. State whether the following statements are true or false:
(i) The issue of bonus shares amounts to a corresponding increase in the paid up capital of the company.
(ii) Reserves created by revaluation of fixed assets are permitted to be capitalised for the issue of bonus shares.
(iii) The declaration of bonus issue in lieu of dividend is allowed.
(iv) Bonus shares are not permitted unless the partly paid shares, if any, are made fully paid.
(v) Premium received in cash is a source of bonus issue.
[Ans- (i) Ture; (ii) False; (iii) False; (iv) True; (v) False]
4. Select the most appropriate answer:
(a) Walter's Model
(b) MM model
(c) Gordon's model
(d) None of the above
[Ans- (b)]
B. SHORT ANSWER TYPE QUESTIONS
1. What is do you mean by dividend ?
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2. What is meant by dividend policy ?
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3. What is dividend pay-out ratio ?
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4. What is 'scrip dividend ?
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5. What do you mean by bonus issue ?
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6. Name the two main theories of dividend.
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7. Name the two important theories of relevance of dividend.
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8. Enlist the factors that influence the dividend policy of a firm.
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9. What is the significance of stable dividends ?
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10. Give sources of bonus issue.
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11. Bonus issue Vs. stock split.
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12. Write a note on dividend policy in practice.
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13. What are the assumption of Walter's model ?
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14. What are the assumptions of Gordon's model ?
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15. Write the assumptions of MM model.
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16. What is the main criticism of MM hypothesis ?
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17. Write a note on dividend policy in practice.
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18. Explain the term stock dividend in 2-3 sentences.
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19. What is cash dividend and stock dividend ?
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C. LONG ANSWER TYPE QUESTIONS
1. what do you understand by dividend ? Explain the types of dividend.
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2. How far do you agree that dividends are irrelevant ?
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3. There is strong view prevalent among financial experts that the irrelevant hypothesis underlying the MM theory of dividend distribution is out-dated and unsuited to present conditions. Do you agree with this view ? Discuss.
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4. In Walter's approach, the dividend policy of a firm depends on availability of investment opportunity and the relationship between the firm's internal rate of return and its cost of capital. Discuss What are the shortcomings of the view.
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5. Explain the various factors which influence the dividend decision of a firm.
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6. ''A firm should follow a policy of very high dividend pay-out.'' Do you agree ? Why or why not ?'
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7. What do you understand by a stable dividend policy ? Why should it be followed ?
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8. Discuss the various forms of dividends. What are the assumptions and criticism of MM hypothesis under dividend policies ?
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9. What do you mean by dividend policy ? Explain the determinants/factors of dividend policy.
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10. ''Theoretically, retained earnings should be treated as the active decision variable and dividends as the passive residual but the practice does not conform to this in most cases.'' Examine the statement.
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11. What considerations are kept in view while deciding the dividend policy of a company ? Explain.
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12. Discuss the various factors influencing the corporate dividend policy.
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13. Discuss in detail the Gordon's model of relevance of dividend policy to the valuation of an entity.
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14. Discuss the theory of irrelevance of dividend decision by using MM model.
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15. What is conservative dividend policy ? Write a not on conservative vs. liberal dividend policy.
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16. Write short notes on:
(a) Dividend pay-out ratio
(b) Stock split vs. reverse split.
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17. What do you understand by bonus issue ? Mention the circumstances that warrant the issue of bonus shares.
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18. What are the sources of bonus issue ? Write detailed note on the issue of bonus shares.
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19. ''An investor gains nothing from 'bonus shares''. Examine the statement critically.
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20. Discuss the legal and procedural aspects of the payment of dividend.
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Questions Type By- Janmoni Hazarika
