Which of the following would likely encourage a firm to increase the debt in its capital structure justify your answer?

An increase in the corporate tax rate would encourage a firm to increase the amount of debt in its capital structure because a higher tax rate increases the interest deductibility feature of debt.

Which of the following factors is likely to encourage a corporation to increase the proportion of debt in its capital structure quizlet?

Which of the following factors is likely to encourage a corporation to increase the proportion of debt in its capital structure? An increase in the corporate tax rate. According to the “trade-off theory,” an increase in the costs of bankruptcy would lead firms to reduce the amount of debt in their capital structures.

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

The correct answer is c. An increase in the corporate tax rate.

Which of the following events is likely to encourage a company to increase the level of debt in its capital structure other things held constant?

Other things held constant, which of the following events is most likely to encourage a firm to increase the amount of debt in its capital structure? The corporate tax rate increases. … The debt ratio that maximizes EPS generally exceeds the debt ratio that maximizes share price.

Which of the following is likely to encourage a company to use more debt in its capital structure a an increase in the corporate tax rate?

An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.

Which of the following would increase the likelihood that a company would increase its debt ratio?

the corporate tax rate
The answer is “2. An increase in the corporate tax rate.”

What is the major contribution of the Miller model?

The major contribution of Miller’s theory is that it demonstrates that personal taxes decrease the value of using corporate debt.

What should a firm’s target capital structure do?

Capital structure refers to the breakdown of a company’s financial resources. The target capital structure of a company specifies how much the corporation will borrow, what kinds of debt it will carry and how much money the shareholders must contribute.

Which of the following current liabilities are considered when calculating net working capital?

Which of the following current liabilities are considered when calculating net working capital? current assets minus current liabilities. You just studied 67 terms!

Which of the following statements best describes the optimal capital structure?

The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS). … The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of preferred stock.

What is a firm’s capital structure?

Capital structure refers to the specific mix of debt and equity used to finance a company’s assets and operations. … Capital structure is also the result of such factors as company size and maturity, which influence the financing options a company may have available.

How do companies decide on their capital structures?

In general, analysts use three ratios to assess the strength of a company’s capitalization structure. The first two are popular metrics: the debt ratio (total debt to total assets) and the debt-to-equity (D/E) ratio (total debt to total shareholders’ equity).

What factors influence capital structure?

Various empirical studies endeavor to investigate determinants of capital structure. The key factors influencing capital structure decisions to be investigated include industry leverage, profitability, firm size, growth opportunities, asset tangibility, expected inflation, and stock market return.

Why do firms choose to raise capital with debt?

Reasons why companies might elect to use debt rather than equity financing include: … Debt can be a less expensive source of growth capital if the Company is growing at a high rate. Leveraging the business using debt is a way consistently to build equity value for shareholders as the debt principal is repaid.

Which capital structure is the best?

An optimal capital structure is the best mix of debt and equity financing that maximizes a company’s market value while minimizing its cost of capital. Minimizing the weighted average cost of capital (WACC) is one way to optimize for the lowest cost mix of financing.

Why debt and equity are considered in the capital structuring?

Capital structure is how a company funds its overall operations and growth. Debt consists of borrowed money that is due back to the lender, commonly with interest expense. Equity consists of ownership rights in the company, without the need to pay back any investment.

What is a debt raise?

Debt Raising means any raising of Financial Indebtedness in any public or private loan or debt capital markets (including any equity-linked instrument or other hybrid product).

How does an increase in debt affect the cost of capital?

If the financial risk to shareholders increases, they will require a greater return to compensate them for this increased risk, thus the cost of equity will increase and this will lead to an increase in the WACC. more debt also increases the WACC as: gearing.