Question

Market value of shares and dividend declared by the two companies is given below. Face Value is same and it is Rs 100 for both the shares. Investment in which company is more profitable ?
(1) Company A - Rs 132 , 12%
(2) Company B - Rs 144 , 16%

Answer 1

The face value of each share is Rs 100.

Market value of share of company A = Rs 132

Dividend = 12%

Dividend income = 12% of Rs 100 = Rs 12

Rate of return from company A = $\frac{\mathrm{Dividend}\mathrm{income}}{\mathrm{Sum}\mathrm{invested}}\times 100\%=\frac{12}{132}\times 100\%=\frac{100}{11}\%=9\frac{1}{11}\%$


Market value of share of company B = Rs 144

Dividend = 16%

Dividend income = 16% of Rs 100 = Rs 16

​Rate of return from company B = $\frac{\mathrm{Dividend}\mathrm{income}}{\mathrm{Sum}\mathrm{invested}}\times 100\%=\frac{16}{144}\times 100\%=\frac{100}{9}\%=11\frac{1}{9}\%$

∴ Rate of return from company B > Rate of return from company A

Thus, the investment in company B is more profitable.