Taggart Technologies Is Considering Issuing New Common Stock and Using

question 64

Multiple Choice

Taggart Technologies 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 Taggart 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 ROA will decline.
• B) Taxable income will decrease.
• C) The tax bill will increase.
• D) Net income will decrease.
• E) The times interest earned ratio will decrease.

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