Which of the following would tend to increase a firm's target debt ratio,other things held constant?
A) The costs associated with filing for bankruptcy increase.
B) The corporate tax rate is increased.
C) The personal tax rate is increased.
D) The Federal Reserve tightens interest rates in an effort to fight inflation.
E) The company's stock price hits a new low.

Question

Quizplus · Accepted Answer

If the corporate tax rate is increased, the tax shield associated with the interest paid on debt also increases, making it more attractive for firms to borrow more and increase their target debt ratio.

Which of the Following Would Tend to Increase a Firm's