A company begins with the following simple balance sheet: $10 million in real assets; $1 million cash; $5.5 million each in owners' equity and debt. It is considering among the following actions:
A. Use half of the cash from the balance sheet to purchase equipment
B. Borrow an additional $1 million and purchase equipment
C. Raise an additional $1 million in equity to purchase equipment
D. Raise an additional $1 million in equity to pay off debt
Which will decrease a company's leverage ratio?
a) A & B
b) C & D
c) A, B & C
d) B, C & D
Ans: b) C & D
Business
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