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Question
Explain the following as factor affecting dividend decision:
Growth opportunities
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Solution
Growth Prospects: Companies with higher growth prospects prefer to retain a greater portion of their earnings for future reinvestment. Accordingly, they pay lesser dividends.
RELATED QUESTIONS
Explain the following as factor affecting dividend decision:
Stability of dividends
Explain the following as factor affecting 'financing decision'.
State of capital markets
Financial management is based on three broad financial decisions. What are these?
Explain the factors affecting the dividend decision.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
What must a business decide about each available source of finance?
What are retained earnings?
What is the nature of debt in a debt-and-equity comparison?
Which payment is compulsory under the borrowing terms?
How does debt normally affect ownership control?
What may be the effect of a fresh issue of equity on control?
What is financial risk?
What happens to debt’s interest and principal commitments when profits are inadequate?
What generally happens as the proportion of debt in total capital increases?
How is interest treated while determining taxable profit?
How does a higher floatation cost affect a financing source?
How does higher financial risk affect the suitability of taking on more debt?
What financing choice is supported by strong cash flows?
Which financing source is favoured by a desire to retain control?
