Cordelion Communications Is Considering Issuing New Common Stock and Using

question 75

Multiple Choice

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.

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Definitions:

Capital Goods

Items used in the production of other goods or services, such as machinery and equipment.

Production Possibility Frontier

A graph showing all the highest production outcomes for two or more products based on a certain amount of inputs (like resources and labor), illustrating the compromises in the production levels among various goods.

Resources Improvements

Enhancements or upgrades to the inputs used in the production process, including technology, labor skills, and machinery, leading to increased efficiency or productivity.

Technology Increase

Refers to advancements or improvements in technology that enhance productivity or efficiency.