Exam 8: Stock

Preferred stock and long-term bonds are similar because

The more financially leveraged a firm, the smaller is its debt ratio.

Cash flow depends on depreciation as well as the firm's earnings.

If accounts receivable are collected more rapidly, the average collection period (days sales outstanding)is reduced.

The relationship between a firm and its state of incorporation is specified in the bylaws.

Pre-emptive rights permit stockholders to

Ratios may be used in both time-series and cross section types of analysis.

Owners of bonds would prefer 1. a debt ratio of 60 percent to a debt ratio of 40 percent 2. a debt ratio of 40 percent to a debt ratio of 60 percent 3. a times-interest-earned of 5.1 to a times-interest-earned of 3.9 4. a times-interest-earned of 3.9 to a times-interest-earned of 5.1

Dividend reinvestment plans are a means to postpone federal income tax on dividends.

If a firm has substantial excess cash, it may 1. repurchase some of its shares 2. increase its cash dividends 3. increase its liabilities

The return on equity measures earnings before interest and taxes.

Activity ratios measure

Dividend policy depends on 1. the firm's earnings 2. investment opportunities available to the firm 3. corporate income taxes

Stockholders in a publicly held corporation have limited liability.

The price of a stock generally adjusts downward for the distribution of dividends.

Cumulative voting permits a stockholder to

Since preferred stock represents equity, the holders of the stock never have the right to vote.

Managements are often reluctant to reduce dividends because reductions may be viewed as indicating financial weakness.

Operating income is not affected by

Dividend increases usually occur prior to an increase in earnings.