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,

Corporation A$\text{'}$s operating income will decrease due to higher. interest expense.

Corporation A will have no change in its operating income since the interest expense

exactly offsets the prior dividend payment.

Corporation A$\text{'}$s gross profit will decrease.

Corporation A$\text{'}$s net income will increase due to the tax deductibility of interest expense.