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:

Innovative

Pertains to the ability or process of creating new ideas, products, or methods that bring novel solutions to problems or improvements to existing conditions.

Entrepreneurial

Characteristics or actions related to the creation, development, and management of a business venture to achieve profit or social goals.

Organizational Change

The process by which organizations transform their structure, strategies, policies, processes, or culture to adapt to internal and external pressures.

Environmental Changes

Alterations in the surrounding physical, chemical, and biological conditions that can affect ecosystems, organisms, and human societies.