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CS Executive Practice Test: Dividend Policy - Financial and Strategic Management
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CS Executive Practice Test: Dividend Policy - Financial and Strategic Management
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25 Questions

1. DHC Ltd. is looking to purchase WIC Ltd., which has the following information: Revenue ₹ 40,00,000; EBITD ₹ 9,00,000; Basic EPS ₹ 1.40; Net assets ₹ 50,00,000 Dividends paid ₹ 0.50. Research has shown that the price-earnings ratio for companies like WIC Ltd. is 9.5. Based on that ratio, what is the value of WIC Ltd.?
2. Retention ratio is 0.55 and return on equity is 12.5% then growth retention model would be –
3. Ali Motors recently completed a 3 for 1 stock split. Prior to the split, the company had 10 million shares outstanding and its stock price was ₹ 150 per share. After the split, the total market value of the company’s stock equaled ₹ 1.5 Billion. What was the price of the company’s stock following the stock split?
4. If markets are in equilibrium, which of the following will occur:
5. Dividend constitutes the cash flow that accrues to –
6. You currently own 100 shares of stock in Baba Ltd. Does the stock currently trade at ₹ 120 a share? The company is contemplating a 2:1 stock split. Which of the following best describes your position after the proposed stock split takes place?
7. The fact that flotation costs can be significant is justification for:
8. All of the following are true of stock splits except:
9. The target payout ratio is:
10. CPC Company’s stock is currently selling for ₹ 40 a share. The stock is expected to pay a ₹ 2 dividend at the end of the year. The stock’s dividend is expected to grow at a constant rate of 7% a year forever. The risk-free rate (RF) is 6% and the market risk premium (RM – RF) is also 6%. What is the stock’s beta?
11. Which of the following examples best represents a passive dividend policy?
12. A stock split will cause a change in the total amounts shown in which of the following balance sheet accounts?
13. Modigliani and Miller argue that the dividend decision
14. Forecast by analysts, retention growth model and historical growth rates are methods used for an –
15. As per Walter’s Model when R = R market price will remain the same when –
16. The date by which a shareholder must be recorded as the shareowner in order to receive a declared dividend is called the:
17. Consider the following two statements:
(I) A company with a large portion of inside ownership, all of whom are high-income individuals.
(II) A growth company with an abundance of good investment opportunities.
For each of the companies described above, would you expect it to have a high or low dividend payout ratio?
18. The net profit before tax of Acumen Ltd. is ₹ 17,50,000. The company has 1,00,000 equity shares of face value ₹ 10 each, fully paid-up. The current market price of the shares is ₹ 85 per share. Income-tax @30% applies to the company. Compute the P/E ratio for the company.
19. Which of the following factor will affect the dividend policy of the firm?
1. Insufficiency of cash
2. Firms contractual obligation
3. Ratio of debt to equity.
4. Business cycle considerations
Select the correct answer from the options given below.
20. The payout ratio is subtracted from one to calculate –
21. As per Gordon’s Model, whether the company adopts 50%, 80%, or any other payout ratio, the market price will remain the same when
22. An equity share of ₹ 100 is expected to earn an annual dividend of ₹ 10 and this share can be sold at a price of ₹ 180 at the end of the year. If the required rate of return is 12%, calculate the value of the equity share.
23. The market price of Jhakas Ltd. is ₹ 200 per share as per Gordon Model. EPS is ₹ 20 per share. The cost of capital is 11%. The rate of return on investment is 12%. What is the retention ratio?
24. Which of the following is an argument for the relevance of dividends?
25. If payout ratio is 0.45 then retention ratio will be:

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