A company wants to maintain its current debt\equity ratio.Which of the following relationships would most likely occur on the cash flow statement?
A)Cash from operations would be equal to any debt paid off during the year.
B)Cash from operations would be equal to cash from financing activities for the year.
C)New borrowings would replace any debt paid off.
D)New borrowings would be less than cash from operations for the year.

Question

Quizplus · Accepted Answer

If the company wants to maintain its current debt/equity ratio, it would need to replace any debt paid off with new borrowings. Therefore, the new borrowings would replace any debt paid off.

A Company Wants to Maintain Its Current Debt\equity Ratio