In a dividend recap, what happens to the Cash Flow Statement with respect to financing?

In a dividend recap, what happens to the Cash Flow Statement with respect to financing?

• A. Cash Flow from Operations increases
• B. Cash Flow from Investing decreases
• C. Net Change in Cash increases
• D. Cash Flow from Financing offsets cash paid to investors, Net Change in Cash unchanged

Answer: (D)

In a dividend recap, the company funds a large dividend by taking on new debt. On the Cash Flow Statement, financing activities show the cash inflow from issuing that debt and the cash outflow from paying the dividend. Because the amount borrowed is used to pay the dividend, these two cash flows offset each other, leaving the net change in cash from financing effectively unchanged. The balance sheet will reflect more debt and a reduced equity payout, but the cash balance itself doesn’t move net from financing in this scenario.

In a dividend recap, the company funds a large dividend by taking on new debt. On the Cash Flow Statement, financing activities show the cash inflow from issuing that debt and the cash outflow from paying the dividend. Because the amount borrowed is used to pay the dividend, these two cash flows offset each other, leaving the net change in cash from financing effectively unchanged. The balance sheet will reflect more debt and a reduced equity payout, but the cash balance itself doesn’t move net from financing in this scenario.