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Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant? a. The company's stock price hits a new low. b. An increase in costs incurred when filing for bankruptcy. c. An increase in the personal tax rate. d. The Federal Reserve tightens interest rates in an effort to fight inflation. e. An increase in the corporate tax rate.

Answer :

Martebi

Answer:

Option e: An increase in the corporate tax rate

Explanation:

Corporate income tax rate is used to know how much people are willing to invest their new capital and also where they will place that new capital.

An increase in it is likely to encourage a company to use more debt in its capital structure.

The lower the corporate tax rate, the more it drives or leads to growth in capital stock, wages, jobs and others while the higer(increase) in corporate income tax rate, the more it affects economic decisions.

An Increase in a company's debt ratio will therefore lead to an increase in the marginal cost of both debt and equity financing. Also this action may lower the company's WACC

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