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Question(s) / Instruction(s):

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   Its sales become less stable over time.

B   The costs that would be incurred in the event of bankruptcy increase.

C   Management believes that the firm’s stock has become overvalued.

D   Its degree of operating leverage increases.

E   The corporate tax rate increases.

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