The correct answer is: Both (A) and (R) are correct and (R) is the correct explanation of (A).
Assertion (A) is correct because the important aspect of dividend policy is to determine the amount of earnings to be distributed to shareholders and the amount to be retained in the firm. This is because the dividend policy of a firm determines how much of its earnings it will distribute to shareholders in the form of dividends and how much it will retain in the firm to finance its future growth.
Reason (R) is also correct because the dividend policy of a firm has its effect on both the long term financing and the wealth of shareholders. This is because the dividend policy of a firm affects the amount of cash that is available to the firm to finance its future growth, and it also affects the price of the firm’s stock.
(R) is the correct explanation of (A) because the dividend policy of a firm determines how much of its earnings it will distribute to shareholders in the form of dividends and how much it will retain in the firm to finance its future growth. This, in turn, affects the long term financing and the wealth of shareholders.
Here is a more detailed explanation of each option:
- Option A: Both (A) and (R) are correct and (R) is the correct explanation of (A). This is the correct answer because both (A) and (R) are correct and (R) is the correct explanation of (A).
- Option B: Both (A) and (R) are correct, but (R) is not the correct explanation of (A). This is not the correct answer because (R) is the correct explanation of (A).
- Option C: (A) is correct, but (R) is incorrect. This is not the correct answer because (R) is correct.
- Option D: (R) is correct, but (A) is incorrect. This is not the correct answer because (A) is correct.