Question #50
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 19
Status: Unattempted
Correct Answer: B
Question
When a firm pays a stock dividend, the dividend is most likely to:
Answer Choices:
A. cause financial leverage ratios to increase
B. have no impact on financial leverage ratios and liquidity ratios
C. cause liquidity ratios to decrease
Explanation
Stock dividends do not affect assets or shareholders' equity, and financial leverage ratios
and liquidity ratios are unaffected. Stock dividends have no economic impact on a
company and do not affect a company's capital structure. (Cash dividends, on the other
hand, decrease liquidity ratios and increase financial leverage ratios.)