Which statement about the Cash Flow Statement is true during a dividend recap?

Which statement about the Cash Flow Statement is true during a dividend recap?

• A. Both Cash Flow from Operations and Investing increase
• B. Net Change in Cash increases
• C. No changes to Cash Flow from Operations or Investing
• D. Both Cash Flow from Financing and Net Change in Cash decrease

Answer: (C)

A dividend recap is a financing action. The company borrows new debt specifically to fund a large cash dividend, so the cash effects show up in the financing section of the cash flow statement as debt proceeds and the dividend payment. These moves do not touch cash flow from operations or cash flow from investing, so those sections remain unchanged. The net change in cash, however, will reflect the net financing activity and can move up or down depending on whether the debt proceeds exceed or fall short of the dividend payout. The other statements are not reliable because operating and investing cash flows aren’t affected by this financing maneuver, and the financing line will be involved, so saying both financing and net change must decrease isn’t accurate.

A dividend recap is a financing action. The company borrows new debt specifically to fund a large cash dividend, so the cash effects show up in the financing section of the cash flow statement as debt proceeds and the dividend payment. These moves do not touch cash flow from operations or cash flow from investing, so those sections remain unchanged. The net change in cash, however, will reflect the net financing activity and can move up or down depending on whether the debt proceeds exceed or fall short of the dividend payout. The other statements are not reliable because operating and investing cash flows aren’t affected by this financing maneuver, and the financing line will be involved, so saying both financing and net change must decrease isn’t accurate.