Question 1

Which of the following ratios represents dividends per common share in relation to market price per common share?

Accepted Answer

A)  dividend payout 
B)  dividend yield 
C)  price/earnings 
D)  book value per share 
E)  percentage of earnings retained 
A)  dividend payout 
B)  dividend yield 
C)  price/earnings 
D)  book value per share 
E)  percentage of earnings retained B

Question 2

When a stock split occurs, earnings per share must be adjusted retroactively.

Accepted Answer

A) True 
 B)False  True

Question 3

Nonrecurring items such as extraordinary income and disposal of a segment require separate earnings per share disclosure.

Accepted Answer

A) True 
 B)False  True

Question 4

A summarized income statement for Leveraged Inc.is presented below.   The degree of financial leverage is:

Accepted Answer

A)  $150,000/$30,000 
B)  $150,000/$120,000 
C)  $1,000,000/$400,000 
D)  $150,000/$80,000 
E)  $400,000/$120,000 
A)  $150,000/$30,000 
B)  $150,000/$120,000 
C)  $1,000,000/$400,000 
D)  $150,000/$80,000 
E)  $400,000/$120,000

Question 5

If financial leverage is used, a rise in EBIT will cause a lessor rise in net income.

Accepted Answer

A) True 
 B)False

Question 6

Book value per share may not approximate market value per share because:

Accepted Answer

A)  the book value is after tax 
B)  book values are based on replacement costs rather than market values 
C)  book value is related to book figures and market value is related to the future potential as seen by investors 
D)  investors do not understand book value 
E)  book value is not related to dividends 
A)  the book value is after tax 
B)  book values are based on replacement costs rather than market values 
C)  book value is related to book figures and market value is related to the future potential as seen by investors 
D)  investors do not understand book value 
E)  book value is not related to dividends

Question 7

The percentage of earnings retained is computed by dividing retained earnings by total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 8

Total earnings from securities include both dividends and price appreciation.

Accepted Answer

A) True 
 B)False

Question 9

When market value is below book value, this relationship indicates that the investors view the company as having strong future potential.

Accepted Answer

A) True 
 B)False

Question 10

Stock appreciation rights give the employee compensation at a future date, based on the market price at the date of exercise in excess of a pre-established dollar market.

Accepted Answer

A) True 
 B)False

Question 11

Stock appreciation rights can have a material impact on reported earnings.

Accepted Answer

A) True 
 B)False

Question 12

The degree of financial leverage is the multiplication factor by which debt to equity changes as new debt is issued.

Accepted Answer

A) True 
 B)False

Question 13

Interest expense creates magnification of earnings through financial leverage because:

Accepted Answer

A)  the interest rate is variable 
B)  interest accompanies debt financing 
C)  the use of interest causes higher earnings 
D)  interest costs are cheaper than the required rate of return to equity owners 
E)  while earnings available to pay interest rise, earnings to residual owners rise faster 
A)  the interest rate is variable 
B)  interest accompanies debt financing 
C)  the use of interest causes higher earnings 
D)  interest costs are cheaper than the required rate of return to equity owners 
E)  while earnings available to pay interest rise, earnings to residual owners rise faster

Question 14

In computing earnings per share, preferred dividends are subtracted from net income.

Accepted Answer

A) True 
 B)False

Question 15

The price/earnings ratio expresses the relationship between selling prices of the company's products and the related earnings.

Accepted Answer

A) True 
 B)False

Question 16

In general, new firms, growing firms, and firms perceived as growth firms will have a relatively low percentage of earnings retained.

Accepted Answer

A) True 
 B)False

Question 17

Some employees prefer restricted stock over options because they receive actual shares of stock.

Accepted Answer

A) True 
 B)False

Question 18

Stock options do not require a cash outlay from the company, while stock appreciation rights often do require a cash outlay.

Accepted Answer

A) True 
 B)False

Question 19

A firm has a degree of financial leverage of 1.20.If earnings before interest and tax increase by 20%, then net income:

Accepted Answer

A)  will not necessarily change 
B)  will increase by 20% 
C)  will decrease by 24% 
D)  will decrease by 20% 
E)  none of the answers are correct 
A)  will not necessarily change 
B)  will increase by 20% 
C)  will decrease by 24% 
D)  will decrease by 20% 
E)  none of the answers are correct

Question 20

The earnings per share is computed for:

Accepted Answer

A)  common stock 
B)  non-redeemable preferred 
C)  redeemable preferred 
D)  common stock and non-redeemable preferred stock 
E)  common stock and fully diluted preferred stock 
A)  common stock 
B)  non-redeemable preferred 
C)  redeemable preferred 
D)  common stock and non-redeemable preferred stock 
E)  common stock and fully diluted preferred stock

Which of the following ratios represents dividends per common share in relation to market price per common share?

When a stock split occurs, earnings per share must be adjusted retroactively.

Nonrecurring items such as extraordinary income and disposal of a segment require separate earnings per share disclosure.

A summarized income statement for Leveraged Inc.is presented below. The degree of financial leverage is:

If financial leverage is used, a rise in EBIT will cause a lessor rise in net income.

Book value per share may not approximate market value per share because:

The percentage of earnings retained is computed by dividing retained earnings by total stockholders' equity.

Total earnings from securities include both dividends and price appreciation.

When market value is below book value, this relationship indicates that the investors view the company as having strong future potential.

Stock appreciation rights give the employee compensation at a future date, based on the market price at the date of exercise in excess of a pre-established dollar market.

Stock appreciation rights can have a material impact on reported earnings.

The degree of financial leverage is the multiplication factor by which debt to equity changes as new debt is issued.

Interest expense creates magnification of earnings through financial leverage because:

In computing earnings per share, preferred dividends are subtracted from net income.

The price/earnings ratio expresses the relationship between selling prices of the company's products and the related earnings.

In general, new firms, growing firms, and firms perceived as growth firms will have a relatively low percentage of earnings retained.

Some employees prefer restricted stock over options because they receive actual shares of stock.

Stock options do not require a cash outlay from the company, while stock appreciation rights often do require a cash outlay.

A firm has a degree of financial leverage of 1.20.If earnings before interest and tax increase by 20%, then net income:

The earnings per share is computed for:

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 9: For the Investor

Which of the following ratios represents dividends per common share in relation to market price per common share?

When a stock split occurs, earnings per share must be adjusted retroactively.

Nonrecurring items such as extraordinary income and disposal of a segment require separate earnings per share disclosure.

A summarized income statement for Leveraged Inc.is presented below. The degree of financial leverage is:

If financial leverage is used, a rise in EBIT will cause a lessor rise in net income.

Book value per share may not approximate market value per share because:

The percentage of earnings retained is computed by dividing retained earnings by total stockholders' equity.

Total earnings from securities include both dividends and price appreciation.

When market value is below book value, this relationship indicates that the investors view the company as having strong future potential.

Stock appreciation rights give the employee compensation at a future date, based on the market price at the date of exercise in excess of a pre-established dollar market.

Stock appreciation rights can have a material impact on reported earnings.

The degree of financial leverage is the multiplication factor by which debt to equity changes as new debt is issued.

Interest expense creates magnification of earnings through financial leverage because:

In computing earnings per share, preferred dividends are subtracted from net income.

The price/earnings ratio expresses the relationship between selling prices of the company's products and the related earnings.

In general, new firms, growing firms, and firms perceived as growth firms will have a relatively low percentage of earnings retained.

Some employees prefer restricted stock over options because they receive actual shares of stock.

Stock options do not require a cash outlay from the company, while stock appreciation rights often do require a cash outlay.

A firm has a degree of financial leverage of 1.20.If earnings before interest and tax increase by 20%, then net income:

The earnings per share is computed for:

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Liquidity of Short-Term Assets; Related Debt-Paying Ability

Long-Term Debt-Paying Ability

Profitability

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters