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

Question

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 · Accepted Answer

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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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 goodsOption 2: Cash issuance of debenturesOption 3: Cash issuance of new sharesOption 4: Redemption of debentures

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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