Question

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?question 9answera.the times interest earned ratio will decrease.b.the tax bill will increase.c.net income will decrease.d.the roa will decline.e.taxable income will decrease.

Answer 1

When Cordelion Communications issues new common stock to reduce its outstanding debt, the times interest earned ratio is likely to decrease. Therefore correct option is A

Step-by-step explanation:

When a company issues new common stock and uses the proceeds to reduce its outstanding debt, several outcomes are likely to occur. One of these outcomes is that the company's times interest earned ratio will decrease. This ratio measures a company's ability to meet its interest payments, and when the company reduces its debt, the interest payments decrease, leading to a decrease in the ratio.

However, it's important to note that the stock issue would have no effect on total assets, the interest rate, EBIT, or the tax rate. Therefore, options C, D, and E are incorrect. The correct answer is option A, the times interest earned ratio will decrease.