Question

A 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. Option C is correct..

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 their equity, the factory can reduce its dependence on external debt and decrease its overall leverage ratio. This can provide more stability and flexibility for the company, as it relies less on borrowed funds and can better handle any financial downturns or fluctuations.

One reason to decrease leverage, especially in scenarios resembling the United States in the 1970s, is the competition and demand environment that only supports a limited number of firms to operate efficiently. With higher machinery costs, a shift towards more labor-intensive methods can also be expected, as this could potentially lower total costs compared to technology that relies more heavily on expensive machinery.