A company is considering distributing additional Rs 80,000 as dividends to its ordinary shareholders. The shareholders...

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A company is considering distributing additional Rs 80,000 as dividends to its ordinary shareholders. The shareholders are expected to earn 18 per cent on their investment. They are in 30 per cent tax and incur an average brokerage fee of 3 per cent on the reinvestment of dividends received. The firm can earn a return of 12 per cent on the retained earnings. Should the company distribute or retain Rs 80,000? A company is considering distributing additional Rs 80,000 as dividends to its ordinary shareholders. The shareholders are expected to earn 18 per cent on their investment. They are in 30 per cent tax and incur an average brokerage fee of 3 per cent on the reinvestment of dividends received. The firm can earn a return of 12 per cent on the retained earnings. Should the company distribute or retain Rs 80,000?

Answer rating: 100% (QA)

To determine whether the company should distribute or retain Rs 80000 we need to compare the returns ... View the full answer