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Introduction to Retirement

Debt equity r...

Question

Debt equity ratio is 0.5:1. Purchase of machinery for cash will decrease or increase the ratio?

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Solution

Dear student
The debt to equity ratio reveals a company's debt as a percentage of its total market value. If the debt is used to purchase the machinery that will Generate future income for the following period, debt to equity ratio may not be useful.
In this case the machinery is purchased for cash, so it will not affect the debt equity ratio.

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