Question: 4.a (10 marks) The U.S. tax code stipulates that corporate income taxes can be returned to a company if the company suffers a negative net

4.a (10 marks) The U.S. tax code stipulates that corporate income taxes can be returned to a company if the company suffers a negative net income, in proportion to the size of the losses. Does this stipulation encourage the use of equity in companies capital structure? Why or why not?

4.b (10 marks) Ben Bernanke has commented that raising debt ratio can put constraints on the risk-taking behavior of managers. But is it a good idea to put on more debts if the company is a high-tech company and facing fierce competitions from existing and potential rivals? Why or why not?

4.c (10 marks) If a company JKL announces that it will repurchase stocks by issuing new debts, is its stock price likely to rise, fall, or remain unchanged? Why?

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