Question

In: Accounting

If a corporation had retained earnings of $10,000,000, what percentage of that total should they use...

If a corporation had retained earnings of $10,000,000, what percentage of that total should they use to pay dividends to their shareholders? What factors should the management of the company consider?

Expert Solution

answer: percentage of dividends paid to share holders is fully depends upon the company's dividend policy and earning capacity . Dividend payout ratio may be( 50:50 or 40:60 or 45:55 or 60 :40 )

explanation :1) dividends are paid to the share holders from the company profits for their (capital ) investment

2) before the equity dividend you must pay the preference dividend

3) dividend payout ratio is fully depends upon the balance of retained earnings and the current year profits

factors considering when you are declaring or paying dividend

1) current year profits

2) decide the D/P ratio

3) consider the future needs of company expansion and development etc

4) requirements and needs of shareholders

5) consider the concern of board of directors

6) taxation policy

7) age of the company

8) useful for determining capital structure and cost of capital

9) liquidity position

10) agency costs

11) profit earning capacity

ekkarill92 answered 7 months ago

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