All else equal, which of the following activities should increase the financial risk of a firm?
A)decrease common stock dividends
B)issue new bonds
C)issue new common stock
D)repurchase (pay off) outstanding debt
E)an increase in the fixed operating costs

Question

Quizplus · Accepted Answer

Issuing new bonds increases the amount of debt the firm has, which increases the financial risk. The other choices do not necessarily increase financial risk; decreasing dividends may actually help conserve cash, issuing new common stock may dilute current shareholders' ownership but does not increase financial risk, and repurchasing outstanding debt can decrease financial risk by reducing interest payments. An increase in fixed operating costs does not necessarily increase financial risk unless it leads to a decrease in profitability.

All Else Equal, Which of the Following Activities Should Increase