Which of the following statements is most correct?
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A. B. C. D. E.D
A major reason for using debt is that interest is deductible, which lowers the effective cost of debt. Lowering the corporate tax rate reduces the tax advantages of debt leading firms to use less debt financing. If the personal tax rate were to increase, individuals would now find interest received on corporate debt less attractive, causing firms to utilize less debt financing. An increase in the costs of bankruptcy might lead firms to use less debt in order to reduce the probability of having to incur these higher costs.