Choice "D" is correct. An increase in the corporate income tax rate might cause a firm to increase the debt in its financial structure because interest is tax deductible, while dividends are not tax deductible.
Choice "a" is incorrect. Increased economic uncertainty would cause a firm to decrease debt (and interest cost).
Choice "b" is incorrect. An increase in the price/earnings ratio would encourage the issuance of equity rather than debt.
Choice "c" is incorrect. A decrease in the times interest earned ratio indicates that earnings have declined compared with interest, and that more debt would be unwise (and more difficult to negotiate).
