CFA CFA Level 1 CFA Level 1 Question of the Week – Corporate Finance

CFA Level 1 Question of the Week – Corporate Finance

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    • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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        dollface said:
        ANSWER SPOILER ALERT:

        I got it right (through knowing that II is wrong), but I don’t understand why debt-to-equity will be increased with cash dividends.

        Nice functionality, you are right! Eliminating wrong answers will be key in your CFA level 1 exam!

      • Avatar of dollfacedollface
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          The spoiler functionality is pretty cool by the way. props to the 300 hours team!

        • Avatar of dollfacedollface
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            ANSWER SPOILER ALERT:

            I got it right (through knowing that II is wrong), but I don’t understand why debt-to-equity will be increased with cash dividends.

          • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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              The correct answer is A.

              Declaring cash dividends decreases ‘cash’ and ‘equity’. Therefore, it decreases the current ratio (Current assets / Current liabilities), and increases the debt-to-asset ratio (Total debt / Total assets) and the debt-to-equity ratio (Total debt / Total equity).

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