Answer:
b. The tax bill will increase
Explanation:
a. Taxable income will decline:
False, because the company reduce its outstanding debt; consequently the interest expenses is reduced; thus taxable income will increase.
b. The tax bill will increase
True, taxable income increase (as explained in item a.), then tax is increased.
c. The ROA will decline
False, though tax is increased but its’ smaller than taxable income increased.
So the net profit/ return is increased; while total asset is unchanged then ROA will increase.
d. Net income will decrease
False, as explained in item c.
e. The times-interest-earned ratio will decrease
False
The times-interest-earned ratio is interest coverage ratio = EBIT or EBITDA divided by interest expense
As explained in above items, interest expense is reduce while return is increase. Thus The times-interest-earned ratio will increase.
