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CIPS Exam L3M1 Topic 4 Question 36 Discussion

Actual exam question for CIPS's L3M1 exam
Question #: 36
Topic #: 4
[All L3M1 Questions]

Which of the following is likely to reduce 'capital growth'? Select all that apply.

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Suggested Answer: B, C

Payment of high salaries and large allowances, may, fairly obviously reduce the amount of profit which can be retained for capital growth. If money is being distributed in this way, it isn't being re-tained.

A profitable company has a choice: to pay dividends to a greater or lesser extent; or retain some of its profits to a greater or lesser extent in the form of retained capital - capital growth.

Increased sales and increased profit may result in increased capital growth, all other things being equal, depending on the firm's dividend policy.


by Rosalyn at Jul 08, 2025, 06:18 PM

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Dominque
22 days ago
I also think C) Payment of dividends could reduce capital growth because it's money being taken out of the company instead of being reinvested.
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Jerry
1 months ago
I agree with Douglass. When a company pays high salaries, it reduces the amount of profit that can be reinvested for growth.
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Douglass
1 months ago
I think B) Payment of high salaries and large allowances to senior managers would reduce capital growth.
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Noah
2 months ago
This is a tricky one. I'd go with B, C, and maybe D, depending on how the profits are being used.
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Stephanie
2 months ago
Haha, I'd say all of the above. The company might as well just burn the money in a barrel if they're going to do all that!
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Cyril
12 days ago
C) Payment of dividends
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Allene
25 days ago
B) Payment of high salaries and large allowances to senior managers
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Hillary
26 days ago
A) Increased sales
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Tijuana
2 months ago
Hmm, I think A and D could also reduce capital growth. Increased sales might mean more expenses, and higher profits could get taxed heavily.
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Patria
18 days ago
User 3: And higher profits could get taxed heavily.
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Carma
19 days ago
User 2: Yeah, increased sales might mean more expenses.
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Izetta
26 days ago
User 1: I think A and D could also reduce capital growth.
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Wynell
2 months ago
B and C for sure. Paying out too much to the big wigs and shareholders won't leave much for the business to grow.
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Salome
24 days ago
C) Payment of dividends
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Shoshana
1 months ago
B) Payment of high salaries and large allowances to senior managers
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Harris
1 months ago
A) Increased sales
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