Which of the following is a good reason for a company to have higher than average debt ratios?
A) The company's cash flows are difficult to predict.
B) The company generates little taxable income.
C) Customer support is an important aspect of the company's business.
D) The company faces high marginal tax rates.

Question

Quizplus · Accepted Answer

Companies with high marginal tax rates can benefit from higher debt ratios because the interest payments on debt are tax-deductible, which can reduce the company's taxable income and therefore its tax liability. This makes leveraging through debt a more attractive option for companies facing high taxes.

Which of the Following Is a Good Reason for a Company