A company wishes to increase its financial leverage. Which of the following actions, all other things being equal, will achieve this?
I. Repurchase stock
II. Issue more dividends
III. Sell accounts receivable at face value
IV. Split stock 2 for 1
A) I, II and III
B) I and II
C) I and IV
D) I, II and IV

Question

Quizplus · Accepted Answer

Repurchasing stock (I) increases financial leverage by reducing equity and increasing the debt-to-equity ratio. Issuing more dividends (II) can also increase leverage by reducing retained earnings, thus decreasing equity. Selling accounts receivable (III) and splitting stock (IV) do not affect leverage.

A Company Wishes to Increase Its Financial Leverage