CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
In financial management, the dividend decision of a company primarily involves choosing between which two alternatives for the profits earned after tax?
The dividend decision is about splitting after-tax profit between distribution to shareholders as dividend and retention within the firm for reinvestment. The aim is to choose a payout policy that maximises shareholder wealth, balancing current income against future growth funded by retained earnings.
- APaying all profits to creditors or to the government
- BDistributing profits to shareholders or retaining them for reinvestment in the businessCorrect
- CIssuing bonus debentures or redeeming preference shares
- DRevaluing assets or writing off intangible assets
Explanation
The dividend decision is the choice of how much of the net profit after tax to distribute to shareholders as dividend and how much to retain for reinvestment. The other options describe unrelated accounting or financing actions and not the payout-versus-retention trade-off.
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