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:

LIFO Periodic

An inventory accounting method where the last items purchased are the first ones used in costing inventory, applied at the end of the accounting period.

Inventory Value

The total cost or market value of all the goods and products held by a company intended for sale in the ordinary course of business.

Rising Prices

Refers to an economic condition where the general level of prices for goods and services increases over a period of time.

LIFO Liquidation

A reduction in inventory that results when the number of units sold exceeds the number of units purchased, often resulting in lower costs and higher profits under Last-In, First-Out accounting.