Which of the Following Statements Is CORRECT, Holding Other Things

question 20

Multiple Choice

Which of the following statements is CORRECT, holding other things constant?

• A) An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.
• B) If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.
• C) An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.
• D) An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.
• E) Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt.

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Definitions:

Unfavorable Effects

Undesired or negative consequences resulting from a particular action or event.

Anticipatory Emotions

Feelings experienced in anticipation of a future event, which can influence decision-making and behavior.

Achievement

The successful completion or reaching of a goal, often through effort, skill, or courage.

Failure

The lack of success in achieving an intended outcome or goal, often leading to a learning opportunity.