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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Definitions:

Bull Money Spread

A type of options strategy that is used when an investor expects a moderate rise in the price of the underlying asset.

Calls

Calls are options contracts giving the holder the right, but not the obligation, to buy a specified amount of an underlying security at a predetermined price within a specified time frame.

Option Quotes

Information about the price of an option contract, including its bid and ask prices, and sometimes the volume and open interest.

Warrants

Financial derivatives that give the right, but not the obligation, to buy or sell a security—mostly equity—at a certain price before expiration.