Which of the following is the effect of the payment of dividends by a company to its stockholders?
A) The company's liquidity decreases, while profitability remains unchanged.
B) The company's profitability and liquidity remains unchanged.
C) The company's profitability and liquidity decrease.
D) The company's profitability increases, while its liquidity decreases.

Question

Which of the following is the effect of the payment of dividends by a company to its stockholders?
A) ​The company's liquidity decreases, while profitability remains unchanged.
B) ​The company's profitability and liquidity remains unchanged.
C) ​The company's profitability and liquidity decrease.
D) ​The company's profitability increases, while its liquidity decreases.

Quizplus · Accepted Answer

Payment of dividends reduces the company's cash balance, hence reducing its liquidity. However, profitability remains unchanged, as payment of dividends is simply a distribution of profits and does not affect the company's operations or earnings.

Which of the Following Is the Effect of the Payment