CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
Mahadev Ltd has 10 lakh shares and earns Rs 2 crore profit after tax. Last year it paid Rs 8 per share. The board adopts a constant payout ratio of 50% this year, when profit falls to Rs 1.2 crore. By how much does dividend per share change compared with last year?
Dividend per share falls by Rs 2. At a 50% payout, dividend is Rs 60 lakh on profit of Rs 1.2 crore, which over 10 lakh shares gives Rs 6 per share, compared with Rs 8 paid last year.
- AFalls by Rs 2 per shareCorrect
- BFalls by Rs 8 per share
- CFalls by Rs 4 per share
- DRemains unchanged
Explanation
Dividend = 50% of Rs 1.2 crore = Rs 60 lakh; per share = 60 lakh / 10 lakh = Rs 6. Last year was Rs 8, so it falls by Rs 2. Rs 4 would come from wrongly using the earlier 50% of Rs 2 crore without checking the actual Rs 8 paid.
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