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:

Illusory Contract

A supposed agreement that lacks the necessary elements of a binding contract, giving the illusion of a mutual contract without any enforceable commitment.

Consideration Requirement

The consideration requirement is a fundamental principle of contract law that mandates a contract must involve an exchange of value between the parties for it to be legally binding.

Monetary Value

The specific amount of money something is worth, often determined by market conditions, demand, and utility.

Promissory Estoppel

A legal doctrine preventing an individual from reneging on a promise when another person has reasonably relied on that promise to their detriment.