Which of the following events is likely to encourage a company to raise its target debt ratio, other things held constant?
A) An increase in the corporate tax rate.
B) An increase in the personal tax rate.
C) An increase in the company's operating leverage.
D) The Federal Reserve tightens interest rates in an effort to fight
Inflation.
E) The company's stock price hits a new high.

Question

Quizplus · Accepted Answer

An increase in the corporate tax rate makes debt more attractive due to the tax deductibility of interest, encouraging a company to raise its target debt ratio.

Which of the Following Events Is Likely to Encourage a Company