The CFO of Mulroney Brothers has suggested that the company should issue $300 million worth of...
The CFO of Mulroney Brothers has suggested that the company should
issue $300 million worth of common stock and use the proceeds to
reduce some of the company's outstanding debt. Assume that the
company adopts this policy, and that total assets and operating
income (EBIT) remain the same. The company's tax rate will also
remain the same. Which of the following will occur:
|
The company's net income will decrease. |
|
|
The company's taxable income will fall. |
|
|
The company will pay more in taxes. |
|
|
The firm's sales will increase |
|
|
none the above are correct. |
Homework Answers
The Correct answer is C. Now that the Debts are paid off, we wont be able take benefit of tax deductability of Debt i.e. We wont be able to reduce income by Interest expenses and Income will inflate. So we will pay more of taxes because of high income.
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