CMA Intermediate · Financial Management and Business Data Analytics · Dividend Decisions and Dividend Theories
Kaveri Textiles Ltd has 8,00,000 equity shares of Rs 10 each fully paid. Its net profit is Rs 64,00,000 and it declares a dividend payout ratio of 40%. What is the dividend per share (DPS) and the earnings per share (EPS)?
DPS is Rs 3.20 and EPS is Rs 8.00. EPS equals profit of Rs 64 lakh divided by 8 lakh shares. A 40% payout means Rs 25.6 lakh is distributed, which is Rs 3.20 per share, and 3.20 divided by 8 gives the 40% ratio.
- ADPS Rs 3.20; EPS Rs 8.00Correct
- BDPS Rs 8.00; EPS Rs 3.20
- CDPS Rs 3.20; EPS Rs 6.40
- DDPS Rs 2.56; EPS Rs 8.00
Explanation
EPS = 64,00,000 / 8,00,000 = Rs 8. Total dividend = 40% of 64,00,000 = Rs 25,60,000, so DPS = 25,60,000 / 8,00,000 = Rs 3.20. Check: 3.20/8.00 = 40%. Swapping the two figures is the key error in the second option.
Did you get it right without looking?
One question tells you little. A timed set on Dividend Decisions and Dividend Theories shows your real accuracy, how long you take and where you lose marks.
More Dividend Decisions and Dividend Theories questions
- An analyst studies 200 listed companies and finds that, in the year after dividend initiation, average abnormal share returns are positive, …
- A profitable Indian manufacturing company has signed a term-loan agreement that bars it from paying dividends beyond 30% of annual profit un…
- Which of the following is an assumption of the Modigliani-Miller (MM) dividend irrelevance theory?
- Sundaram Ltd has 50,000 shares, opening price Rs 200, ke 10%, and declares no dividend. It plans to invest Rs 20,00,000 and has net income o…
- A company has 10 lakh shares, current-year profit of Rs 2 crore, and a stable dividend of Rs 8 per share. Profit next year falls to Rs 60 la…
- Sunrise Pharma Ltd has 4,00,000 equity shares of Rs 10 each, share capital Rs 40,00,000, and reserves of Rs 60,00,000. It issues bonus share…