Which of the following would decrease the ﬁnancial leverage of a ﬁrm?
A) Total assets increase and the debt-to-equity ratio remains constant.
B) Total debt increases and total assets remain constant.
C) Net new equity is sold and existing bonds are paid off.
D) Net new bonds are sold and outstanding common stock is repurchased.
E) Net new bonds are sold and short-term notes payable are paid off.

Question

Quizplus · Accepted Answer

Selling net new equity and using the proceeds to pay off existing bonds would decrease the financial leverage of the firm, as there would be a lower amount of debt in relation to equity.

Which of the Following Would Decrease the ﬁNancial Leverage of a ﬁRm