Which of the following statements are most likely true regarding cash dividends? I. Cash dividends decrease the current ratio. II. Cash dividends decrease the debt-to-assets ratio. III. Cash dividends increase the debt-to-equity ratio. A. I & III only B. II & III only C. I, II & III

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!

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

CFA Level 1 Question Of The Week - Corporate Finance (4) - CFA Level 1

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This topic has 4 replies, 2 voices, and was last updated Jun-197:12 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  - CFA Charterholder
  07 Jun 2019 at 8:51 am
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  ::
  Which of the following statements are most likely true regarding cash dividends?
  
  I. Cash dividends decrease the current ratio.
  
  II. Cash dividends decrease the debt-to-assets ratio.
  
  III. Cash dividends increase the debt-to-equity ratio.
  - A. I & III only
  - B. II & III only
  - C. I, II & III
- dollface
  Participant
  - CFA Level 2
  08 Jun 2019 at 6:15 am
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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.
- dollface
  Participant
  - CFA Level 2
  08 Jun 2019 at 6:15 am
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  ::
  The spoiler functionality is pretty cool by the way. props to the 300 hours team!
- Matt_AnalystPrep
  Participant
  - CFA Charterholder
  12 Jun 2019 at 7:11 am
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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).
- Matt_AnalystPrep
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  - CFA Charterholder
  12 Jun 2019 at 7:12 am
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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!
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