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:

New Deal

was a series of programs, public works projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States during the 1930s to help alleviate the effects of the Great Depression.

Tax Increase

A rise in the amount of money that individuals or corporations must pay to the government based on earnings or purchases.

Federal Budget Deficit

The shortfall that occurs when the government's expenditures exceed its revenues in a fiscal year.

Economic Growth

An increase in a country's capacity to produce goods and services, reflected by an upward trend in national income, employment, and GDP.