Other things held constant,which event is most likely to encourage a firm to increase the amount of debt in its capital structure?
A)Its sales become less stable over time.
B)The costs that would be incurred in the event of bankruptcy increase.
C)Management believes that the firm's stock has become overvalued.
D)The corporate tax rate increases.

Question

Quizplus · Accepted Answer

An increase in the corporate tax rate would increase the tax shield benefit of debt financing, thus making it more attractive for firms to use more debt in their capital structure.

Other Things Held Constant,which Event Is Most Likely to Encourage