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Question
If the face value of both the shares is same, then which investment out of the following is more profitable?
Company A : dividend 16%, MV = ₹ 80, Company B : dividend 20%, MV = ₹ 120.
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Solution
Let the face value of each share be ₹ x.
The market value of each share of company A = ₹ 80
Dividend = 16%
Dividend = % Dividend × F.V.
Dividend = `16/100 xx x` = 0.16x
Sum Invested = ₹ 80
Now, Rate of return = `"Dividend Income"/"Sum Invested"` × 100
= `(0.16x)/80 xx 100`
= `(16x)/80`
= Rate of return = `x/5`%
The market value of each share of company B = ₹ 120
Dividend = 20%
Dividend = % Dividend × F.V.
Dividend = `20/100 xx x` = 0.2x
Sum Incested = ₹ 120
Rate of return = `"Dividend Income"/"Sum Invested"` × 100
= `(0.2x)/120 xx 100`
= `(2x)/120`
= `x/6`%
Rate of return = `x/6`%
∵ Rate of return of company A > The rate of return of company B.
∴ Investment in company A is more profitable
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