Which one of the following has the greatest tendency to increase the percentage of debt included in the optimal capital structure of a firm?
A)exceptionally high depreciation expenses
B)very low marginal tax rate
C)substantial tax shields from other sources
D)low probabilities of financial distress
E)minimal taxable income

Question

Quizplus · Accepted Answer

Low probabilities of financial distress make it more attractive for a firm to include a higher percentage of debt in its capital structure, as the risks associated with default are perceived to be lower. This encourages firms to leverage the benefits of debt financing, such as tax shields on interest payments, without facing significant risks of financial distress.

Which One of the Following Has the Greatest Tendency to Increase