A company is considering issuing either a straight coupon bond or a coupon bond with warrants attached. The proceeds from either issue would be the same. If the firm issues the bond with warrants attached instead of a straight coupon bond, which of the following ratios will most likely be lower for the bond with warrants?

Explanation: The portion of the proceeds attributable to the warrants would be classified as equity; thus the portion classified as a liability would be smaller (lower). Therefore the debt-to-equity ratio will be lower for the bonds with warrants.

EBIT would be the same regardless of financing method; the coupon on the bond with warrants attached would be lower if the two issues provided the same proceeds, so the interest coverage would be higher for a bond with warrants attached. Since interest expense would be lower for a bond with warrants attached, Net Income would be higher and ROA would be higher.