Cordelion Communications Is Considering Issuing New Common Stock and Using

question 83

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:

Net Operating Income

The profit realized from a business's operations after subtracting all operating expenses but before taxes and interest.

Planning Budget

A budget prepared for a specific level of activity, used as a tool for decision making and planning.

Net Operating Income

A company's income after operating expenses are subtracted but before deducting interest and taxes, reflecting the profitability from core operations.

Planning Budget

A budget created for a specific level of activity, it helps in planning and controlling costs based on projected operational activities.