Assume Congress passes a new law that raises taxes on indivi…
Assume Congress passes a new law that raises taxes on individual dividends and realized capital gains. Assume the new law also increases the federal corporate tax rate from 21% to 28%. Based on our knowledge of tradeoff theory, the theoretical impact of the new law would be for firms to a) Increase debt relative to equity from current levels (higher (D/E) b) Decrease debt relative to equity from current levels (lower D/E) c) keep debt levels about the same (same D/E)