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Business Studies · 2023 · 3 marks
CBSE 2023 · Region 4 · Set 3 · Q24
(a) State any three factors that affect the 'Dividend Decision' of a company.
(a)
State any three factors that affect the 'Dividend Decision' of a
company.
OR
(b)
State any three factors that affect the fixed capital requirements
of a company.
Marking-scheme solution
Factors affecting dividend decision of a company are:
(i)
Earnings are a major determinant of dividend decision 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.
(vi)
Shareholder’s preference is kept in mind by the management before
declaring dividends.
(vii)
Taxation policy affects the dividend decision as a higher dividend
distribution tax will lead to lesser dividend payout.
(viii)
The possible stock market reaction on the share price to dividend
policy is one of the important factors affecting dividend decision.
(ix)
While taking dividend decision, companies take into consideration
their access to capital market.
(x)
Certain provisions of the Companies Act i.e. legal constraints place
restrictions on payout of dividend.
(xi)
While taking dividend decision, companies keep in mind the
restrictions imposed by the lenders i.e. contractual constraints.
State any three factors that affect the fixed capital requirements
of a company.
Factors affecting the requirements of fixed capital:
(i)
Nature of business as a trading concern needs a lower investment in
fixed assets as compared to a manufacturing concern since it doesn’t
require to purchase plant and machinery.
(ii)
Scale of operations as a larger organisation operating at a higher
scale needs bigger plant and more space and hence higher investment in
fixed assets.
(iii)
Choice of technique as a capital intensive organisation requires
higher investment in plant and machinery and thus requires higher fixed
capital than a labour intensive organisation.
(iv)
Technology upgradation as industries where assets become obsolete
sooner require higher fixed capital to purchase such assets.
(v)
Higher growth prospects require higher investment in fixed assets to
meet anticipated demand quicker
(vi)
Availability of financing alternatives like leasing requires lower
investment in fixed assets and hence requires less fixed capital.
(vii)
Collaboration reduces the level of investment in fixed assets.
(viii)
Diversification will increase the fixed capital requirements as the
investment in fixed capital will increase.
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CBSE Class 12 Business Studies past-paper question from the 2023 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.