Which of the following is most consistent with an increase in the ratio of debt to equity?
A)Payment of a required principal payment on long-term debt.
B)Repurchase of a portion of the company's outstanding common stock.
C)Higher than expected profits due to a decrease in cost of goods sold.
D)Payment of most accounts receivable immediately prior to year-end using a portion of the company's cash.

Question

Quizplus · Accepted Answer

Repurchasing of outstanding common stock reduces the equity component of the company's capital structure and increases the debt-to-equity ratio. A payment on long-term debt (A) reduces debt and has the opposite effect, while higher profits (C) and payment of accounts receivable (D) do not have a direct impact on the debt-to-equity ratio.

Which of the Following Is Most Consistent with an Increase