How Would the Declaration of a Cash Dividend Affect the Calculation

question 46

Multiple Choice

How would the declaration of a cash dividend affect the calculation of a company's price-earnings ratio? (Hint: Do not consider any change in the market price of the stock that might occur because of the declaration of the dividend. )

• A)It will have no effect on the price-earnings ratio.
• B)The effect depends on the market price of the stock at the time the dividend is declared.
• C)It will decrease the price-earnings ratio.
• D)It will increase the price-earnings ratio.

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