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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


Team Careers360 1st Jan, 2024
Answer (1)
Team Careers360 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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