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6) Corporation A decides to borrow $1,000,000 and use the money to buy back $1,000,000 of its common stock. The corporation pays 6% interest on

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6) Corporation A decides to borrow $1,000,000 and use the money to buy back $1,000,000 of its common stock. The corporation pays 6% interest on its borrowed funds which exactly equals the amount of the dividend it used to pay on the common stock it repurchased. Therefore, A) Corporation A's operating income will decrease due to higher interest expense. B) Corporation A's net income will increase due to the tax deductibility of interest expense. C) Corporation A will have no change in its operating income since the interest expense exactly offsets the prior dividend payment. D) Corporation A's gross profit will decrease. 8) An analyst is evaluating two companies, A and B. Company A has a debt ratio of 50% and Company B has a debt ratio of 25%. In his report, the analyst is concerned about Company B's debt level, but not about Company A's debt level. Which of the following would best explain this position? A) Company B has much higher operating income than Company A. B) Company A has a lower times interest earned ratio and thus the analyst is not worried about the amount of debt. C) Company B has a higher operating return on assets than Company A, but Comp A has a higher return on equity than Company B. D) Company B has more total assets than Company A. 9) Baker Corp. is required by a debt agreement to maintain a current ratio of at least 2.5, and Baker's current ratio now is 3. Baker wants to purchase additional inventory for its upcoming Christmas season, and will pay for the inventory with short-term debt. How much inventory can Baker purchase without violating its debt agreement if their total current assets equal $15 million? A) $0.50 million B) $1.67 million C) $4.50 million D) $6.00 million fullring transaction

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