Which statement describes the cash flow effect of a dividend recap on the cash flow statement?

Which statement describes the cash flow effect of a dividend recap on the cash flow statement?

• A. Cash flow from financing decreases
• B. Cash flow from financing increases due to new debt and cash out to shareholders; net cash change zero
• C. Cash flow from operations increases
• D. Cash flow from investing increases

Answer: (B)

A dividend recapitalization is a financing move: the company borrows new debt and uses the proceeds to pay a dividend to shareholders. On the cash flow statement, both the debt issuance and the dividend payout appear in the financing section. The debt proceeds show up as a financing inflow, while the dividend payment shows up as a financing outflow. If the amount borrowed funds the dividend exactly, the two cash flows offset, leaving the net change in cash from financing essentially zero. The only broad takeaway is that this event reshuffles cash within financing activities rather than altering operating or investing cash flows.

A dividend recapitalization is a financing move: the company borrows new debt and uses the proceeds to pay a dividend to shareholders. On the cash flow statement, both the debt issuance and the dividend payout appear in the financing section. The debt proceeds show up as a financing inflow, while the dividend payment shows up as a financing outflow. If the amount borrowed funds the dividend exactly, the two cash flows offset, leaving the net change in cash from financing essentially zero. The only broad takeaway is that this event reshuffles cash within financing activities rather than altering operating or investing cash flows.