Which event 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 company's stock price hitting a new high

Question

Quizplus · Accepted Answer

An increase in the corporate tax rate makes debt financing more attractive because interest payments on debt are tax-deductible, effectively reducing the cost of borrowing. This tax shield encourages companies to increase their target debt ratio to capitalize on the tax benefits.

Which Event Is Likely to Encourage a Company to Raise