Taggart Technologies Is Considering Issuing New Common Stock and Using

question 52

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 decline.
• C) The tax bill will increase.
• D) Net income will decrease.
• E) The times-interest-earned ratio will decrease.

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Definitions:

Cash Dividends

The portion of a company's earnings that is distributed to shareholders in the form of cash payments.

Fiscal Year

A 12-month period used for accounting purposes, which may not necessarily align with the calendar year.

Statement of Cash Flows

A financial report that summarizes the amount of cash and cash equivalents entering and leaving a company, showing how the company raises and spends money during a specific period.

Financing Activities

Transactions between a company and its financiers, including equity, debt, and dividend payments, affecting the cash flow statement.