CBSE Class 12 Business Studies 2026: question 2
Set in the CBSE Class 12 board exam of 2026, paper 66/5/1, section A, question 2, for 1 mark. Try it first; the hints and our step-by-step solution are below.
Q2 · 1 mark · MCQCompetency-basedFinancial Management
‘Tangy Beverages Ltd.’ was known for its popular tangy fruit drinks. It had recently introduced a new range of fruit drinks that became an instant hit among consumers and led to a significant increase in the company’s profits. As a result, the Board of Directors wanted to declare a higher dividend for the year. The Chief Finance Officer suggested that they should evaluate the impact of dividend on the share price of previous years before taking a decision. An analysis was done, which showed how the company’s share price had risen in previous years whenever the dividend was increased. On the other hand, even a small decrease in dividend had led to a noticeable dip in the share price.
Which of the following factors affecting dividend decision was suggested by the Chief Finance Officer to the Board of Directors in the above case ?
- (A)Access to capital market
- (B)Stock market reaction
- (C)Shareholders preference
- (D)Cash flow position
Source: official question paper from cbse.gov.in (PDF). See it in the full 2026 board paper, set 66/5/1.
Hints
Open one hint at a time and try again before the next.
Hint 1
What did the analysis of past years look at?
Hint 2
Higher dividends usually lift share prices.
Step-by-step solution
Each step shows the marks it earns, as an examiner would award them. Checked by an independent re-solve from the question paper.
The CFO asked the board to study how the share price reacted to past increases and decreases in dividend.
- 1 mark
The effect of dividend changes on the share price is the factor stock market reaction. Option (B).
Answer: (B) Stock market reaction
Where the marks are
- Share price response to dividend changes (1 mark)
Revise the chapter
- Chapter: Financial Management (notes, formulas, where marks are lost and every past question)
- Topic: Dividend Decision
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