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Question : A company's debt to equity ratio is 1: 2. Which of the following transactions will result in an increase:

Option 1: Credit purchases of goods

Option 2: Cash issuance of debentures

Option 3: Cash issuance of new shares

Option 4: Redemption of debentures 


Team Careers360 8th Jan, 2024
Answer (1)
Team Careers360 24th Jan, 2024

Correct Answer: Cash issuance of debentures


Solution : Issue of new debenture for cash means an increase in debenture value so numerator value will increase hence ratio also increases.
We can say debenture issues for cash increase the ratio between a company's debt to equity.
Hence option 2 is the correct answer.

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