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Question
Explain the following as factor affecting dividend decision:
Access to capital market
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Solution
Access to capital market: Generally, companies having greater access to the capital market are likely to pay higher dividends. This is because they need not rely much on retained earnings. On the other hand, companies with lower access to capital markets are likely to pay lower dividends.
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| Ananta Ltd. is a company dealing in ready-made garments for the last many years. Recently the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders. |
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
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NB Ltd. is India's largest manufacturer of cement. Its operations are spread throughout the country with 17 modern cement factories. It has a workforce of 9,000 people. Since its inception, the company has been a trendsetter in the cement industry. The company is planning to grow in the long run and wants to double its capacity in the next 3 years. For this, the Finance Manager has to decide about the quantum of finance to be raised from various long-term sources. For this, he needs to identify various available sources of funds and the proportion of funds from each source. |
- Identify the financial decision to be taken by the Finance Manager.
- State any four factors which would affect the decision identified in (i) above.
Identify the financial decision that is concerned with deciding how much of the profit earned by a company is to be distributed to shareholders and how much should be retained in the business. Also state any three factors affecting the identified decision.
What must a business determine about its total finance requirement when making a financing decision?
Under which area are short-term financing requirements considered?
Which set of outcomes is affected by a financing decision?
What are shareholders’ funds?
What is the nature of equity in a debt-and-equity comparison?
How does equity compare with debt regarding repayment of capital?
Which comparison of financial risk for debt and equity is correct?
How does debt normally affect ownership control?
Why is cheaper debt not automatically the best source of finance?
Which are examples of fixed operating costs?
