copy and paste paper jghfjyuhkj buhyoinm bui78yik ujy89ui uiyuioj 1. ABC Industries Ltd. has enjoyed a moderate but stable growth in sales and earnings. Because of a stiff competition recently in its polythene fibres product line, its sales have been declining. So it plans for developing a new diversified product line. Dividend per share given by the company is Rs.2.5 Dividend policy has been to maintain a stable rupee dividend. What would be an appropriate dividend policy for ABC Industries Ltd.?
Ans. The management of ABC Industries Ltd should recognize that it will be in constant need of more funds owing to its intended policy of moving into new product lines in growth-oriented industries. To the extent the shareholders have strong expectations about maintenance of the current dividend, the current policy is appropriate. The company through advertisement should make the investors aware of the new growth prospects and greater investment opportunities ahead. Such an announcement would help prevent the share prices from falling on reduction of the dividend paid, if the company adopts policy of immediate dividend cut.
2. When company is in profit but under certain circumstances cash is not available how company distributes its profit? Concept using bonus shares
Ans. Company very often distributes dividend in cash. but in certain circumstances where cash is not available or company wants to capitalise its profits, it may distribute dividend in the form of shares know as bonus shares. Bonus shares represent distribution of shares lieu of or in addition to the cash dividend to the existing share holders, if the articles so permit .the shares are issued to the existing ordinary share holders in proportion to their present holdings. Thus it makes no change in owners’ equity. Reasons for issue
1) When company has accumulated huge profits and reserves and it desire to capitalize these profits so as use them on permanent basis in the business. 2) When there...
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