Stennett Corp

Multiple Choice

Stennett Corp.'s CFO has proposed that the company issue new debt and use the proceeds to buy back common stock. Which of the following are likely to occur if this proposal is adopted? (Assume that the proposal would have no effect on the company's operating earnings.)

A) Return on assets (ROA) will decline.
B) The times interest earned ratio (TIE) will increase.
C) Taxes paid will decline.
D) None of the statements above is correct.
E) Statements a and c are correct.