Question

Some of the following statements are incorrect.  Identify three of them and explain why you think they are incorrect.
a) Dividend policy is irrelevant for a company is sometimes true.
b) A share purchase is beneficial to the shareholders because it reduces the number of outstanding shares and increases the earnings per share.
c) A company will increase dividends when the company makes a profit in any one year.
d) Not many companies surveyed want to maintain a smooth dividend from year to year.
e) Bonus shares issued to the shareholders will always change the value of the company.

Answer 1

c) A company will increase dividends when the company makes a profit in any one year.
d) Not many companies surveyed want to maintain a smooth dividend from year to year.
e) Bonus shares issued to the shareholders will always change the value of the company.

Option C is incorrect because companies can increase dividends from their past profits (retained earnings reserves) as well and hence the condition of profit is not necessarily true

Option D is incorrect because companies want to maintain smooth dividend from year to year

Option E is incorrect because bonus shares does not change the value of the company