Purchase Solution

Event likely to encourage a company to raise its target debt

Not what you're looking for?

Ask Custom Question

Which of the following events is likely to encourage a company to raise its target debt ratio?

a. An increase in the corporate tax rate.

b. An increase in the personal tax rate.

c. An increase in the company's operating leverage.

d. Statements a and c are correct.

e. All of the statements above are correct.

Please explain the choice.

Purchase this Solution
Solution Summary

This posting answers the student's multiple choice question regarding the event likely to encourage a company to raise its target debt ratio, and provides a detailed explanation for the correct choice.

Solution Preview

Answer: A

An increase in the tax rate would lower the after-tax cost of debt relative to equity; therefore, this would encourage a company to raise its ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Introduction to Finance

This quiz test introductory finance topics.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • Debt Ratio

    131997 Debt Ratio Which of the following is likely to encourage a company to raise its target debt ratio 1. an increase in corporate tax rate 2. an increase in the personal tax rate 3an increase in the company's operating leverage 4. statements 1

  • Info System Technology (IST) manufactures microprocessor chi

    IST must raise $500 million to build a new production facility.

  • Corporate Governance Effects

    Greenmail applies to money that is paid by the target company to the corporate raider that has purchased a majority of the target company's stock.

  • 14-10 Buena Terra, 13-2 Capital Structure & Dividend Policy

    Can the company maintain its current capital structure, maintain the $3.00 DPS, and maintain a $10 million capital budget without having to raise new common stock? e.

  • Ethical Brain Trust- Event Management in Hospitality/Tourism

    Given the potential income, hospitality/tourism venues will try to encourage event management staff to utilize their facilities and these efforts to encourage choice and/or preference often raise ethical issues.

  • Finance - target capital structure

    Is it likely the company will follow a residual dividend policy? Why or why not? d. If the company decided to pay out $4.5 million in dividends, how much would it need to raise in equity outside the company? e.

  • Asymmetric Information And Capital Structure

    ITS must raise $500 million to build a new production facility.

  • Detailed Explanation to Residual Dividend Policy

    In addition, the company wants to maintain its target capital structure (60 percent equity and 40 percent debt) and maintain its $10 million capital budget.

  • Flotation Costs

    308180 Calculating Flotation Costs Southern Alliance Company needs to raise $30 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future.

View More Related Solutions