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Business Studies · 2023 · 4 marks
CBSE 2023 · Region 3 · Set 1 · Q28
State any four factors affecting the decision which relates to how much of
the profits earned by a company will be distributed and how much will be
retained in the business.
Marking-scheme solution
Factors affecting the decision :
(i)
Amount of Earnings are a major determinant of the
decision about dividend as dividends are paid out of
current and past earnings.
(ii)
Stability of Earnings is another factor affecting
dividend decision as a company having stable
earnings is in a position to declare higher dividends.
(iii)
Companies generally prefer to maintain stability of
dividends while taking dividend decision.
(iv)
If a company has good growth opportunities, it pays
out less dividend.
(v)
A good cash flow position is necessary for
declaration of dividend.
Shareholders Preference is kept in mind by the
(vi)
management before declaring dividends.
Taxation Policy affects the dividend decision as a
(vii)
higher dividend distribution tax will lead to lesser
dividend payout.
The possible stock market reaction to dividend
(viii)
policy on the share price is one of the important
factors affecting dividend decision.
While taking dividend decision, companies take into
(ix)
consideration their access to capital market.
(x)
Certain provisions of the Companies Act, i.e. legal
constraints place restrictions on pay-outs as
dividend.
While taking dividend decision, companies keep into
(xi)
mind the restrictions imposed by the lenders i.e.,
contractual constraints.
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CBSE Class 12 Business Studies past-paper question from the 2023board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.