CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
Kaveri Industries has a net profit of Rs 60,00,000 and 10,00,000 shares. It has a target capital expenditure of Rs 90,00,000, to be financed 40% by debt and 60% by equity, and follows a residual dividend policy. What is the dividend per share?
Dividend per share is Rs 0.60. Under a residual policy, equity funding needed is 60% of Rs 90 lakh, which is Rs 54 lakh. Profit of Rs 60 lakh less this leaves Rs 6 lakh for dividends, which spread over 10 lakh shares gives Rs 0.60.
- ARs 0.60Correct
- BRs 6.00
- CRs 3.60
- DRs 2.40
Explanation
Equity needed = 60% x 90,00,000 = Rs 54,00,000. Residual dividend = 60,00,000 - 54,00,000 = Rs 6,00,000. DPS = 6,00,000 / 10,00,000 = Rs 0.60. Rs 2.40 results from using 40% (the debt share) as equity: 60,00,000 - 36,00,000 = 24,00,000, wrong ratio.
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