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 be less than cash from operations for the year.
D) New borrowings would replace any debt paid off.

Question

Quizplus · Accepted Answer

To maintain its current debt/equity ratio, a company would need to replace any debt it pays off with new borrowings. This ensures that the proportion of debt to equity remains constant, aligning with the goal of maintaining the current ratio.

A Company Wants to Maintain Its Current Debt/equity Ratio