Question

'Mudro Infratech' got a short-term contract for building two villas within a period of ten months with the expectation to earn a huge amount of profit. The Works Manager accepted this challenge and completed the work within the given time period. The profit of the company went up by 40 due to this temporary order. The Finance Manager was aware that the company would not earn this huge profit in the near future. So, he decided not to increase dividend per share as earnings for the year had gone up, but not the earning potential of the company.
The factor affecting Dividend Decision being highlighted above is:

• A. Cash flow position
• B. Shareholders' preference
• C. Growth opportunities
• D. Stability of dividends

Hint:

Companies should focus on long-term earnings stability rather than making abrupt dividend changes based on temporary profits.

Answer 1

The Correct Option is D

Step 1: Understanding Dividend Decisions
Dividend decisions depend on various factors, including company earnings, financial stability, and long-term growth prospects.
Step 2: Identifying the Relevant Factor
- The Finance Manager decided against increasing dividends because the higher earnings were temporary.
- Stability of dividends means that companies prefer maintaining a consistent dividend policy rather than increasing dividends due to temporary earnings.
Conclusion: The correct answer is (mathbf{(D)}), as the company prioritized stable dividend payouts over short-term profits.