If a ﬁrm acquires more long-term debt while also issuing additional shares of stock, then the:
A) Debt-equity ratio will increase.
B) Debt-equity ratio will decrease.
C) Debt equity ratio will remain constant.
D) Change in the debt-equity ratio cannot be determined from the information provided.
E) Net Income will increase.

Question

Quizplus · Accepted Answer

The change in the debt-equity ratio cannot be determined because both debt and equity are increasing, and without knowing the relative amounts, we cannot determine the net effect on the ratio.

If a ﬁRm Acquires More Long-Term Debt While Also Issuing