Question

Which of the following events would not improve (increase) a company's return on equity? (Assume all else remains the same.) a. Retirement of long-term debt with cash b. Sale of common stock for cash c. Reduction in operating expenses Select one: a O b bandc a and c a and b C с None of the events would improve a company's return on equity.

please note the question is asking "does NOT improve"

Please provide a brief explanation, thank you!

Answer 1

Ans : b. Sale of common stock for cash.

Because retirement of Long Term Debt with Cash and Reduction in Operating Expenses, both leads to decrease in Expenditure as Interest Payment will be reduced and hence, income will increase and return on equity will also increase. On the otherhand, when stock is sold, Equity is increased now if profit remains the same, the rate of return will decrease.

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