If a Company Increases Its Debt Ratio, but Leaves Its

question 100

Multiple Choice

If a company increases its debt ratio, but leaves its operating income (EBIT) and total assets unchanged, which of the following is most likely to occur:

• A) The company's tax liability will fall.
• B) The company's net income will rise.
• C) The company's basic earning power will fall.
• D) Answers a and b are correct.
• E) None of the answers above is correct.

---

Definitions:

Medical Expenses

Amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for treatments affecting any part or function of the body.

Itemized Deductions

Deductions from taxable income that are individually listed on a tax return, allowing taxpayers to reduce their taxable income by specific allowable expenses.

AMT

Alternative Minimum Tax, a parallel tax system in the United States designed to ensure that individuals and corporations pay a minimum level of income tax.

Miscellaneous Deductions

Miscellaneous Deductions are tax deductions not classified under standard deductions or itemized deductions, often subject to thresholds and limitations.