question archive Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant? An increase in the corporate tax rate
Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant? An increase in the corporate tax rate
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Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant?
An increase in the corporate tax rate.
The Federal Reserve tightens interest rates in an effort to fight inflation.
An increase in the personal tax rate.
The company's stock price hits a new low.
An increase in costs incurred when filing for bankruptcy.
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Answer : a. an increase in the corporate tax rate.
Capital structure is combination of debt and equity. it is important because cost of a company money to borrow. it also matters because of the different tax implications of debt vs. equity and the impact of corporate taxes on a firm's profitability. Firms must be prudent in their borrowing activities to avoid excessive risk and the possibility of financial distress or even bankruptcy.
