Which of the following statements is CORRECT,holding other things constant?
A) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs,hence they tend to use relatively little debt.
B) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
C) If changes in the bankruptcy code make bankruptcy less costly to corporations,then this would likely lead to lower debt ratios for corporations.
D) An increase in the company's degree of operating leverage would tend to encourage the firm to use more debt in its capital structure so as to keep its total risk unchanged.
E) An increase in the corporate tax rate would in theory encourage companies to use more debt in their capital structures.

Question

Quizplus · Accepted Answer

The Answer of Which of the following statements is CORRECT,holding other things constant?
A) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs,hence they tend to use relatively little debt.
B) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
C) If changes in the bankruptcy code make bankruptcy less costly to corporations,then this would likely lead to lower debt ratios for corporations.
D) An increase in the company's degree of operating leverage would tend to encourage the firm to use more debt in its capital structure so as to keep its total risk unchanged.
E) An increase in the corporate tax rate would in theory encourage companies to use more debt in their capital structures.

Which of the Following Statements Is CORRECT,holding Other Things Constant