Question 1

Which of the following is not a true statement regarding stock options?

Accepted Answer

A) They may cause dilution of earnings per share 
B) They generally allow the purchase of common stock at favorable terms 
C) They involve a compensation expense 
D) Exercise improves the short-term liquidity and debt position of the issuing firm 
E) The potential dilution can be disregarded in financial analysis 
A) They may cause dilution of earnings per share 
B) They generally allow the purchase of common stock at favorable terms 
C) They involve a compensation expense 
D) Exercise improves the short-term liquidity and debt position of the issuing firm 
E) The potential dilution can be disregarded in financial analysis E

Question 2

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  False

Question 3

The use of financing with a fixed charge (such as interest)is termed financial leverage.

Accepted Answer

A) True 
 B)False  True

Question 4

A disadvantage of interest expense over dividends is its tax deductibility.

Accepted Answer

A) True 
 B)False

Question 5

The use of debt financing creates financial leverage.

Accepted Answer

A) True 
 B)False

Question 6

Match the ratio that goes with each formula.
-$\frac {\text { Earnings Before Interest, Tax, Noncontrolling Interest, Equity Income, and Nonrecurring Items }} { \text {Earnings Before Tax, Noncontrolling Interest, Equity Income, and Nonrecurring Price per Share} }$

Accepted Answer

A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share 
A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share

Question 7

The following data were gathered from the annual report of Desk Products. $\begin{array}{llcc}
  \text { Market price per share } &\$30.00  \
 \text { Number of common shares } &10,000\
 \text { Preferred stock, 5\% $ \$ 100 $ par } &\$10,000\
 \text { Common equity } &\$140,000\
\end{array}$

The book value per share is:

Accepted Answer

A) $30.00. 
B) $15.00. 
C) $14.00. 
D) $13.75. 
E) $13.50. 
A) $30.00. 
B) $15.00. 
C) $14.00. 
D) $13.75. 
E) $13.50.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

Match the ratio that goes with each formula.
-$\frac { \text {Total Stockholder's Equity -
Preferred Stock Equity}  } { \text { Number of Common Shares Outstanding}}$

Accepted Answer

A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share 
A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share

Question 12

Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having:

Accepted Answer

A) a high debt ratio. 
B) cyclical highs and lows. 
C) steady or rising profits. 
D) a steadily declining current ratio. 
E) none of the answers are correct. 
A) a high debt ratio. 
B) cyclical highs and lows. 
C) steady or rising profits. 
D) a steadily declining current ratio. 
E) none of the answers are correct.

Question 13

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 14

In 2012,ABC Company reported earnings per share of $2.00 for 10,000 shares.In 2013,there was a 2-for-1 stock split,for which 2013 earnings per share were reported at $2.10.The appropriate earnings per share presentation for a 2-year comparative analysis would be:
$\begin{array} { l l } 
\quad\quad\underline{ 2013 }  &\underline{ 2012 }\
I.\quad\$2.10&\$2.00\
II\quad\$ 1.05 & \$ 2.00 \
III\quad\$ 1.05 & \$ 2.00 \
IV\quad\$ 2.10 & \$ 1.00
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV 
E) none of the answers are correct 
A) I 
B) II 
C) III 
D) IV 
E) none of the answers are correct

Question 15

Total earnings from securities include both dividends and price appreciation.

Accepted Answer

A) True 
 B)False

Question 16

Dividend yield relates dividends per share to market price per share.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A summarized income statement for Leveraged Inc.is presented below. $\begin{array}{llcc}
  \text {Sales  } & \$1,000,000 \
 \text { Cost of Sales } &\underline{600,000}\
 \text { Gross Profit } &\$400,000\
 \text {Operating Expenses  } &\underline{250,000}\
 \text {Operating Income  } &\$150,000\
 \text { Interest Expense } &\underline{30,000}\
 \text {Earnings Before Tax } &\$120,000\
 \text { IncomeTax } &\underline{40,000}\
 \text { Net Income  } &\underline{\underline{\$80,000}}\
\end{array}$

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 19

Match the ratio that goes with each formula.
-$\frac {\text {Dividends per Common Share  }} { \text {Market Price per Common Share} }$

Accepted Answer

A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share 
A) degree of financial leverage 
B) basic earnings per common share 
C) price/earnings ratio 
D) percentage of earnings retained 
E) dividend payout
F)dividend yield
G)book value per share

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following is not a true statement regarding stock options?

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

The use of financing with a fixed charge (such as interest)is termed financial leverage.

A disadvantage of interest expense over dividends is its tax deductibility.

The use of debt financing creates financial leverage.

Match the ratio that goes with each formula. - $\frac {\text { Earnings Before Interest, Tax, Noncontrolling Interest, Equity Income, and Nonrecurring Items }} { \text {Earnings Before Tax, Noncontrolling Interest, Equity Income, and Nonrecurring Price per Share} }$

The following data were gathered from the annual report of Desk Products. Market price per share \3 0.00 Number of common shares 10,000 Preferred stock, 5\% \ 100 par \1 0,000 Common equity \1 40,000 The book value per share is:

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.

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

Match the ratio that goes with each formula. - $\frac { \text {Total Stockholder's Equity -Preferred Stock Equity} } { \text { Number of Common Shares Outstanding}}$

Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having:

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

Total earnings from securities include both dividends and price appreciation.

Dividend yield relates dividends per share to market price per share.

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

A summarized income statement for Leveraged Inc.is presented below. Sales \1 ,000,000 Cost of Sales Gross Profit \4 00,000 Operating Expenses Operating Income \1 50,000 Interest Expense Earnings Before Tax \1 20,000 IncomeTax Net Income The degree of financial leverage is:

Match the ratio that goes with each formula. - $\frac {\text {Dividends per Common Share }} { \text {Market Price per Common Share} }$

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

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 is not a true statement regarding stock options?

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

The use of financing with a fixed charge (such as interest)is termed financial leverage.

A disadvantage of interest expense over dividends is its tax deductibility.

The use of debt financing creates financial leverage.

The following data were gathered from the annual report of Desk Products. Market price per share \3 0.00 Number of common shares 10,000 Preferred stock, 5\% \ 100 par \1 0,000 Common equity \1 40,000 The book value per share is:

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.

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

Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having:

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

Total earnings from securities include both dividends and price appreciation.

Dividend yield relates dividends per share to market price per share.

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

A summarized income statement for Leveraged Inc.is presented below. Sales \1 ,000,000 Cost of Sales Gross Profit \4 00,000 Operating Expenses Operating Income \1 50,000 Interest Expense Earnings Before Tax \1 20,000 IncomeTax Net Income The degree of financial leverage is:

Match the ratio that goes with each formula. - Dividends per Common Share Market Price per Common Share\frac {\text {Dividends per Common Share }} { \text {Market Price per Common Share} }Market Price per Common ShareDividends per Common Share ​

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

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

Match the ratio that goes with each formula. - $\frac {\text {Dividends per Common Share }} { \text {Market Price per Common Share} }$