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? a. The corporate tax rate increases. b. Management believes that the firm's stock has become overvalued. c. The costs that would be incurred in the event of bankruptcy increase. d. Its sales become less stable over time. e. Its degree of operating leverage increases.

The correct answer is letter "A": The corporate tax rate increases.

Explanation:

Increasing corporate tax rates have negative effects on the economy. Companies will see their profits reduced by significant which will discourage private investment. A country with little private investment will face increasing rates of unemployment which leads to a decrease in consumption and along with it, the decrease in the economy's growth.

Firms are pushed to request loans to increase their capital structure as one of the first measures to mitigate losses and keep business up and running in front of this scenario.

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