Question

Factory that relies on highly technical machinery may choose to reduce its overall leverage position by:

A. selling its machinery.
B. increasing its accounts receivable.
C. utilizing a higher level of equity.
D. decreasing their variable costs per unit.

Answer 1

A factory that relies on highly technical machinery may choose to reduce its overall leverage position by utilizing a higher level of equity.

Step-by-step explanation:

A factory that relies on highly technical machinery may choose to reduce its overall leverage position by utilizing a higher level of equity. By increasing the proportion of equity in its capital structure, the factory can decrease its reliance on debt and reduce its leverage position. This can make the factory less vulnerable to financial risks and provide a more stable financial foundation.

A higher level of equity means that the factory will have a larger ownership stake funded by the owner's investments. This can be achieved by retaining earnings and reinvesting them into the business or by raising additional capital through equity financing.

By reducing its overall leverage position through increased equity, the factory can lower its debt-to-equity ratio and potentially improve its creditworthiness. This can lead to increased investor confidence and lower borrowing costs for the company.