Question

Which of the following will increase the likelihood of a company raising capital using debt over equity?

		An increase in bankruptcy costs
		A decrease in risk for stocks
		An increase in the corporate tax rate
		The stock price hitting an all time high

Answer 1

Option C is correct

An increase in the corporate tax rate will increase the likelihood of a company raising capital using debt over equity because the interest expenses on the debt are tax deductible and with increase in tax rate, the tax benefits increases.

Option A is incorrect because if there is an increase in bankruptcy costs, the the company is most likelt to raise capital using equity not debt

Option B is incorrect because a decrease in risk for stocks will make the company to use equity over debt

Option D is incorrect because if the stock price is hitting an all time high, then the company can raise more money with equity, not debt