Which of the following would result in an increase in a firm's financial debt-to-capital ratio, all else
Equal?
A)A firm's stock price increases.
B)A firm increases its use of trade credit.
C)A firm buys some equipment, using a bank loan.
D)both A and C.

Question

Quizplus · Accepted Answer

Taking a bank loan to purchase equipment would increase a firm's financial debt-to-capital ratio, as debt would increase while capital would remain the same. A firm's stock price increasing (choice A) does not affect its debt-to-capital ratio. Increasing use of trade credit (choice B) may not necessarily affect the debt-to-capital ratio as it is not considered a form of long-term debt. Therefore, the correct answer is C. Taking a bank loan to buy equipment would increase the firm's financial debt, which would increase the financial debt-to-capital ratio. Increasing use of trade credit or an increase in stock price would not affect the debt-to-capital ratio.

Which of the Following Would Result in an Increase in a Firm's