If a firm chooses to maintain a fixed debt-equity ratio, they can raise the additional needed funds by:

Question

Quizplus · Accepted Answer

Maintaining a fixed debt-equity ratio means that any additional needed funds must be raised by issuing debt, as opposed to issuing stock. In this case, the amount of debt itself becomes the balancing item, since equity is held constant. Dividends are not affected by the decision to issue debt, as they are a distribution of profits to shareholders and are separate from the financing decision.

If a Firm Chooses to Maintain a Fixed Debt-Equity Ratio