Textbook Problem

Which of the following would likely entourage, a firm to increase the debt in its capital structure?

1. a. The corporate tax rate increases.
2. b. The personal tax rate increases.
3. c. Due to market changes, the firm's assets become less liquid.
4. d. Changes in the bankruptcy code make bankruptcy less costly to the firm.
5. e. The firm’s sales and earnings become more volatile.