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CIPS L3M1 Exam - 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.

Show Suggested Answer Hide Answer
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, 05:18 PM

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Lilli
2 months ago
Wait, how does paying dividends reduce growth? Sounds off.
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Raymon
2 months ago
I think C can actually help investors, not hurt them.
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Willard
3 months ago
A and D should boost growth, right?
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Cecilia
3 months ago
High salaries (B) are a big drain on resources, for sure.
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Stephane
3 months ago
B definitely reduces capital growth.
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Cherelle
3 months ago
I’m confused about option A; increased sales usually lead to growth, right? So I’m not sure how that would reduce capital growth.
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Shaquana
4 months ago
I practiced a similar question where increased profits were linked to growth, so I’m leaning towards D being incorrect.
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Ryan
4 months ago
I’m not entirely sure, but I feel like paying dividends (option C) could also reduce capital growth since it takes money out of the company.
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Bronwyn
4 months ago
I remember discussing how high salaries for managers can impact overall profits, so I think option B might be a good choice.
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Mozell
4 months ago
Dividends are a tricky one. They do reduce the company's capital, but they also signal financial health, which could boost growth. I'll have to think that one through.
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Maryanne
4 months ago
Payment of high salaries and large allowances to senior managers - that one seems like it could reduce capital growth by taking away funds that could be reinvested. I'll mark that one.
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Anabel
4 months ago
Okay, let's see. Increased sales and increased profit seem like they would increase capital growth, not reduce it. I'll have to focus on the other options.
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Theron
5 months ago
Hmm, this is an interesting one. I'll need to think carefully about the relationship between capital growth and the factors mentioned.
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Dominque
7 months 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
7 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
7 months ago
I think B) Payment of high salaries and large allowances to senior managers would reduce capital growth.
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Noah
7 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
7 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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Sherita
5 months ago
Yeah, definitely not a good strategy for capital growth.
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Amie
5 months ago
D) Increased profit
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Chara
5 months ago
C) Payment of dividends
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Alethea
5 months ago
A) Increased sales
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Freida
5 months ago
I agree, it seems like they're just wasting money.
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Rex
5 months ago
D) Increased profit
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Cyril
6 months ago
C) Payment of dividends
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Allene
7 months ago
B) Payment of high salaries and large allowances to senior managers
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Hillary
7 months ago
A) Increased sales
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Tijuana
8 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
7 months ago
User 3: And higher profits could get taxed heavily.
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Carma
7 months ago
User 2: Yeah, increased sales might mean more expenses.
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Izetta
7 months ago
User 1: I think A and D could also reduce capital growth.
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Wynell
8 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
7 months ago
C) Payment of dividends
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Shoshana
7 months ago
B) Payment of high salaries and large allowances to senior managers
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Harris
7 months ago
A) Increased sales
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