Which of the following transactions will lower a company's financial leverage?
A) A mortgage loan is obtained and the proceeds are used to pay off existing short-term debt.
B) Preferred stock is sold and the proceeds are used to pay off existing short-term debt.
C) Common stock is sold and the proceeds are used to pay off existing short-term debt.
D) Short-term debt is obtained to get the company through a period of negative net income and cash flow.

Question

Quizplus · Accepted Answer

Selling common stock and using the proceeds to pay off debt reduces financial leverage because it decreases the company's reliance on debt financing.

Which of the Following Transactions Will Lower a Company's Financial