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Business Studies · 2025 · 4 marks
CBSE 2025 · Region 1 · Set 1 · Q30
VK Ltd. is a fast moving consumer goods company. It has shareholders spread all over India. Most of its shareholders depend upon a regular income…
VK Ltd. is a fast moving consumer goods company. It has
shareholders spread all over India. Most of its shareholders
depend upon a regular income from their investment.
VK Ltd. has been earning consistent profits. The
management of the company keeps in mind the preference of
the shareholders regarding payment of dividend. Since its
shareholders, in general, desire that at least a certain amount
is paid as dividend to them every year, the company declares
dividend every year.
Atul, the Finance Manager of the company identified
promising growth opportunities. He suggested to the Chief
Executive Officer to retain the earnings to finance the
required investments instead of declaring dividend every
year. For this, the Chief Executive Officer decided to call a
General Body Meeting of the shareholders.
(i)
Identify two factors affecting dividend decision discussed
above.
(ii)
State two other factors that affect the dividend decision of
a company.
Marking-scheme solution
(i)
Two factors affecting dividend decision discussed above
are:
§ Shareholders’ Preference
§ Growth Opportunities
(ii)
Other factors that affect the dividend decision of a company
are:
(i)
Amount of Earnings affect dividends as they are paid out of
current and past earnings.
(ii)
Stability of earnings affects dividends as a company having
stable earnings is in a better position to declare higher
dividends as compared to a company with unstable earnings.
(iii)
Stability of dividends also affects dividend decision as
companies generally follow a policy of stabilising dividend per
share and the increase in dividend is generally made when the
earning potential goes up.
(iv)
Cash Flow position affects the dividend decision as
availability of enough cash in the company is necessary for
declaration of dividend.
(v)
Taxation policy affects the tax treatment of dividend and
capital gains as when tax on dividend is higher, it is better to
pay less by way of dividends
(vi)
As stock markets react positively to increase in dividend, it
is an important factor considered by the management while
taking a decision about it.
(vii)
Large and reputed companies generally have easy access
to the capital market, and therefore, may depend less on
retained earnings to finance their growth, and therefore, pay
high dividends.
(viii)
Certain legal constraints like provisions of the Companies
Act place restrictions on payouts as dividends, which must be
adhered to while declaring the dividend.
(ix)
Contractual constraints affect the dividend decision as
companies are required to ensure that the dividend does not
violate the terms of the loan agreement.
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.