A firm whose debt to equity ratio ________ the industry average will ________ future financing flexibility by financing with equity at the next opportunity but doing so may sacrifice earnings per share.
A)is less than; maximize
B)exceeds; minimize
C)exceeds,maximize
D)None of the above.

Question

Quizplus · Accepted Answer

A firm with a debt to equity ratio that exceeds the industry average will maximize future financing flexibility by opting for equity financing next. This approach reduces leverage, thereby increasing the firm's capacity to take on debt in the future if needed. However, issuing new equity can dilute earnings per share, as profits are spread over a larger number of shares.

A Firm Whose Debt to Equity Ratio ________ the Industry