With Its Current Financial Policies, Flagstaff Inc

question 8

Multiple Choice

With its current financial policies, Flagstaff Inc.will have to issue new common stock to fund its capital budget.Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock.Which of the following actions would REDUCE its need to issue new common stock?

• A) Increase the percentage of debt in the target capital structure.
• B) Increase the proposed capital budget.
• C) Reduce the amount of short-term bank debt in order to increase the current ratio.
• D) Reduce the percentage of debt in the target capital structure.
• E) Increase the dividend payout ratio for the upcoming year.

---

Definitions:

Traceable Fixed Expenses

Fixed costs that can be directly associated with a specific business segment or product, aiding in accurate financial analysis and decision-making.

Common Fixed Expenses

Costs that do not vary with the level of production or sales and are shared among different segments or products of a company.

Break-even

The point at which total costs and total revenues are equal, resulting in no net loss or gain.

Sales Dollars

The total revenue generated from the sale of goods or services, measured in dollar amount.