Question : What is the purpose of a dividend policy?
Option 1: To determine the market value of equity shares
Option 2: To determine the conversion ratio of debentures
Option 3: To distribute profits to shareholders
Option 4: To regulate the issue of preference shares
Correct Answer: To distribute profits to shareholders
Solution : The correct answer is (c) To distribute profits to shareholders.
The purpose of a dividend policy is to determine how a company will distribute its profits or retained earnings to its shareholders. A dividend policy outlines the guidelines and principles that a company follows when deciding how much of its profits will be distributed as dividends to its shareholders.
Therefore, the primary purpose of a dividend policy is to establish guidelines for distributing profits or retained earnings to shareholders. It outlines how much of the company's earnings will be allocated as dividends and helps provide clarity and consistency in the company's approach to sharing its profits with shareholders.
