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The CFO of Daves Industries plans to have the company issue $300 million of a...

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Accounting

The CFO of Daves Industries plans to have the company issue $300 million of a new common stock and use the proceeds to pay off some of its outstanding bonds that carry a 7% interest rate. 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?

A. The companys taxable income would fall.

B. The companys interest expense would remain constant.

C. The company would have less common equity than before.

D. The companys net income would increase.

E. The company would have to pay less taxes. And why?

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