1. Which one of the following would tend to increase a company s degree of financial leverage?
Borrowing money in the bond market and using the funds to repurchase shares of stock.
Replacing minimum wage shift workers with robots.
Putting all of the sales force onto a 100% commission basis for their compensation.
Refinancing its debts to reduce the interest rate it pays each year.
2. Debt ratings are an important consideration in managing financial leverage. As financial leverage rises, debt ratings tend to
Improve.
Deteriorate.
Become more stable.
Increase in demand.