The CFO of Shalit Industries plans to have the company issue $300 million of new

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 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?
a. The company's taxable income would fall.
b. The company's interest expense would remain constant.
c. The company would have less common equity than before.
d. The company's net income would increase.
e. The company would have to pay less taxes.

Explanation / Answer

   Company's net income would increase because of if the higer the tax rates then the company would have pay more tax. here the Tax rate is cosnstant and the EBIT also constant. But the compay pay off the bonds so the interest chages would have decrease. therefore the company could pay less interest and the tax rate is same, this increases the net income for the compay.    Therefor the company's net income would increase.

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