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Explain the Following as Factor Affecting Dividend Decision: Shareholder'S Preferences

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Question

Explain the following as factor affecting dividend decision:

Shareholder's preferences

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Solution

Preference of shareholders: The preference of shareholders must also be considered while taking dividend decisions. For instance, if shareholders prefer that a certain minimum amount of dividends be paid, then the company may declare the same.

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2013-2014 (March) Delhi Set 2

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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.
  1. Identify and state the financial decision taken by the finance manager in the above case.
  2. State any three factors affecting the decision identified in (i) above.

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.

  1. Identify the financial decision to be taken by the Finance Manager.
  2. State any four factors which would affect the decision identified in (i) above.

Besides the total amount of long-term finance required, what must a business identify?


What must a business decide about each available source of finance?


Under which area are short-term financing requirements considered?


What are shareholders’ funds?


Which statement about payment of dividends on equity is correct?


How does equity compare with debt regarding repayment of capital?


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 generally happens as the proportion of debt in total capital increases?


How does lower cost affect the attractiveness of a source of finance?


What financing choice is supported by strong cash flows?


Which are examples of fixed operating costs?


Which sequence correctly orders the seven factors affecting financing decisions?


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