Debt to Equity Ratio of X Ltd is 1 2 What is the effect of conversion of debentures into preference ...........

Debt to Equity Ratio of X Ltd. is 1 : 2. What is the effect of conversion of debentures into preference shares on this ratio?

Increase

Decrease

Not change

May decrease or not change

- The initial Debt to Equity Ratio of X Ltd. is 1:2.

- Debentures are part of the debt component in this ratio.

- Converting debentures into preference shares decreases the debt and increases equity.

- With reduced debt and increased equity, the Debt to Equity Ratio would logically decrease.

Answer: Option 2 - Decrease

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