A. The use of equity as the source of capital leads to a decreased financial leverage.
B. Leverage measures borrowed monies and the associated fixed interest costs and since the issuance of equity does not have either of these, financial leverage of the company would not increase with the issuance of common stock and the retirement of preferred stock.
C. If the dividend payout ratio is decreased, retained earnings will increase and the financial leverage of the company will not increase.
D. Using more bonds in the future would increase the financial leverage since bonds are a fixed cost source of capital.
