A company is earning huge profits and there is no future plan for expansion and diversification. However, the company has decided to pay very less dividend to the shareholders.
(i) Do you think the company is justified of such policy ?
(ii) Whose interest is affected by this decision of the company ?
(iii) Do you think payment of lesser dividend will help the company in achieving the primary objective of wealth maximization of shareholders ?
(i)No, the company is not justified as it is not providing fair return on capital employed.
(ii) Shareholders’ interests are being affected as they are not getting fair returns.
(iii) No, the company will not be able to achieve the
primary objectives of wealth maximisation of shareholders, as paying lesser dividend adversely affects the market price of shares.