Which of the Following Statements Is CORRECT, Holding Other Things

question 30

Multiple Choice

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 reduce the debt ratio of the average corporation.
• D)An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• E)An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.

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Definitions:

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