Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt.The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate.Which of the following is likely to occur if the company goes ahead with the stock issue?
A) The times interest earned ratio will decrease.
B) The ROA will decline.
C) Taxable income will decrease.
D) The tax bill will increase.
E) Net income will decrease.

Question

Quizplus · Accepted Answer

Issuing new stock to reduce debt will decrease interest expenses, leading to higher taxable income and thus a higher tax bill.

Cordelion Communications Is Considering Issuing New Common Stock and Using