A) Taggart Technologies 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 Taggart pays, EBIT, or the tax rate. Which of the following is most likely to occur if the company goes ahead with the stock issue?
The ROA will decline.
Taxable income will decline.
The tax bill will increase.
Net income will decrease.
The times-interest-earned ratio will decrease.
B) If the yield curve is upward sloping, what is the yield to maturity on a 10-year Treasury relative to that on a 1-year Treasury?
The yield on the 10-year bond is less than the yield on a 1-year bond.
The yield on a 10-year bond is higher than the yield on a 1-year bond.
The yields on the two bonds are equal.
It is impossible to tell without knowing the relative risks of the two bonds.
None of the answers are correct.