Question : Assuming that the Proprietary Ratio is 0.6: 1, the Buy-back of its own shares by a company.
Option 1: Increase proprietary ratio
Option 2: Decrease proprietary ratio
Option 3: No changes
Option 4: Increase debt equity ratio
Answer (1)
8th Jan, 2024
Correct Answer: Decrease proprietary ratio
Solution : Answer = Decrease proprietary ratio
Proprietary Ratio $=0.6: 1$
Proprietary Ratio = Proprietor fund/ Total. Assets.
$\frac{.6}{1}=\frac{60,000}{1,00,000}$
Let Buy-Back of own Shares = 30000
$=\frac{60,000-30,000}{1,00,000-30,000} \quad \frac{30,000}{70,000}$
= 0.3: 1 (Decrease)
Share Holder fund, as well as Total Assets, are decreased by the same amount. Hence, the correct option is 2.
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