JJJ Corp has $10 million in assets and is currently financed with 100% equity. The firm decides to switch to a 60% equity/40% debt structure and decides to sell $4 million of debt and use the proceeds to retire $4 million in equity today. This is an example of _________________.

Question

Quizplus · Accepted Answer

The firm is actively managing its capital structure by switching from a 100% equity financing to a 60% equity/40% debt financing. By retiring $4 million in equity and issuing $4 million in debt, the firm is changing its capital structure to be more debt-oriented. This is an active decision made by the firm to change its capital structure, hence the correct answer is B. The other options do not apply to this scenario.

JJJ Corp Has $10 Million in Assets and Is Currently