With Its Current Financial Policies, Flagstaff Inc

Multiple Choice

With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

A) increase the percentage of debt in the target capital structure.
B) increase the proposed capital budget.
C) reduce the amount of short-term bank debt in order to increase the current ratio.
D) reduce the percentage of debt in the target capital structure.
E) increase the dividend payout ratio for the upcoming year.