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

a The TIE will increase, not decrease. b is false because reducing debt will lower interest, raise income, and thus raise ROA. c is false for the above reason. d is true for the above reason. e is false.

Cordelion Communications Is Considering Issuing New Common Stock and Using