The CFO of Shalit Industries plans to have the company issue $300 million of new
ID: 2671892 • Letter: T
Question
The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?he company’s taxable income would fall.
The company’s interest expense would remain constant.
The company would have less common equity than before.
The company’s net income would increase.
The company would have to pay less taxes.
Explanation / Answer
The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?
he company’s taxable income would fall.
correct answer
The company’s net income would increase.