Question

‘Tangy Beverages Ltd.’ was known for its popular tangy fruit drinks. It had recently introduced a new range of fruit drinks that became an instant hit among consumers and led to a significant increase in the company’s profits. As a result, the Board of Directors wanted to declare a higher dividend for the year. The Chief Finance Officer suggested that they should evaluate the impact of dividend on the share price of previous years before taking a decision. An analysis was done, which showed how the company’s share price had risen in previous years whenever the dividend was increased. On the other hand, even a small decrease in dividend had led to a noticeable dip in the share price.

Which of the following factors affecting dividend decision was suggested by the Chief Finance Officer to the Board of Directors in the above case?

विकल्प

• Access to capital market

• Stock market reaction

• Shareholders preference

• Cash flow position

Answer 1

Stock market reaction

Explanation:

The CFO asked them to study how past dividend changes affected the company’s share price, which directly concerns how the stock market reacts to dividend decisions (shares rise when dividends are raised, dip when cut). Stock-market reaction matters because investor expectations and market valuation can be materially affected by dividend announcements, so it should inform the Board’s decision.