Fort Saskatchewan Ltd.is choosing between paying out a stock dividend or a cash dividend.What will be the effect on their debt-to-equity ratio of the two choices?

$\begin{array}{ll}&\text { Stock } & \text { Cash } \
&\text { Dividend } & \text { Dividend }\\hline
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Increased } \
C.&\text { Increased } & \text { Unchanged } \
D.&\text { Increased } & \text { Increased }
\end{array}$

Question

Fort Saskatchewan Ltd.is choosing between paying out a stock dividend or a cash dividend.What will be the effect on their debt-to-equity ratio of the two choices?

$\begin{array}{ll}&\text { Stock } & \text { Cash } \
&\text { Dividend } & \text { Dividend }\\hline
A.&\text { Unchanged } & \text { Unchanged } \
B.&\text { Unchanged } & \text { Increased } \
C.&\text { Increased } & \text { Unchanged } \
D.&\text { Increased } & \text { Increased }
\end{array}$

Quizplus · Accepted Answer

Paying a stock dividend does not affect the company's balance sheet in terms of total assets or liabilities, so the debt-to-equity ratio remains unchanged. However, paying a cash dividend reduces the company's assets (cash) without affecting its total liabilities, which can increase the debt-to-equity ratio as the equity portion decreases.

Fort Saskatchewan Ltd A)Option a B)Option B C)Option C D)Option D

Fort Saskatchewan Ltd A)Option a
B)Option B
C)Option C
D)Option D