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

Financial leverage decreases when a company reduces its debt relative to equity. Selling net new equity and using the proceeds to pay off existing bonds reduces the company's debt, thereby decreasing its financial leverage.

Which of the Following Would Decrease the Financial Leverage of a Firm