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

question 88

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 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.