Until recently, state law left the Vermont Alcohol and Tobacco Company (VAT) with a near-monopoly on sales of these items in Vermont. (Mail order is prohibited.) The legislation has just been repealed, and soon competing retailers will be opening up stores in Vermont. As the CFO, you are deciding whether this should affect VATs target leverage ratio (currently 50%). If you want to improve shareholder value, you should

Group of answer choices

A. Raise the ratio. The repeal means that your firm needs to become more competitive, and higher debt payments will force management to run a tighter operation.

B. Raise the ratio. Your inventories make good collateral, and using a debt issue to fund a share repurchase will give shareholders a much-needed boost in stock price.

C. Lower the ratio. The repeal opens up all sorts of growth opportunities for your company, and debt payments would interfere with your ability to pursue these.

D. Lower the ratio. More competition means lower margins, increasing the chance that your firm will miss interest payments and enter financial distress.