Cordelion Communications Is Considering Issuing New Common Stock and Using

question 77

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:

Tax Burden

The measure of taxes that an individual or business must pay out of their income or profit.

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare among entities in the market.

Imported Wine

Wine that is produced in one country and then shipped to and sold in another country.

Regressive

A term describing a tax imposed in such a manner that the rate decreases as the amount subject to taxation increases.