Which of the following statements abouot the declaration and payment of cash dividends is correct? A. Declaration and payment of cash dividends will reduce the amount of net income.
B. Declaration and payment of cash dividends will not reduce the Retained Earnings balance.
C. Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets.
D. Declaration and payment of cash dividends is calculated on the amount of shares of stock issued, not the amount of shares outstanding.

C. Declaration and payment of cash dividends will reduce the amount of cash available to invest in assets.

Explanation:

When a company pays out Dividends it gives out money to it's shareholders and this has the effect of decreasing the cash balance that the company has.

This is cash that could have gone into investing and expanding the business but instead has gone to shareholders. Dividends therefore reduce the money available for investments.

It is for this reason that Growth Companies do not pay much dividends as they keep reinvesting profits to increase capacity and this usually adds value to the company and increases their stock price within a shorter period of time.

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