Question 1

Dawn Alive reported the following for 2012.

Ending market price $40.75
Earnings per share:
Basic 2.50
Diluted 2.08
Dividends per share 1.10

The price/earnings ratio and dividend payout were:
Answer

19.59 and 52.88%

16.30 and 52.88%

16.30 and 44.00%

19.59 and 44.00%

37.04 and 52.88%

Question 2

The ratio percentage of earnings retained is the same as that termed:
Answer

dividend yield.

dividend payout.

this year’s retained earnings to net income.

return on common equity.

book value.

Question 3

What is the effect of the exercise of stock options?
Answer

They generate cash to the issuing firm and therefore increase profit per share.

They are an expense at the time of exercise. This lowers net income.

They increase debt and lower borrowing capacity but have no effect on profit.

They increase the number of shares outstanding.

They have no immediate effect on profitability

Question 4

Interest expense creates magnification of earnings through financial leverage because:
Answer

the interest rate is variable.

interest accompanies debt financing.

the use of interest causes higher earnings.

interest costs are cheaper than the required rate of return to equity owners.

while earnings available to pay interest rise, earnings to residual owners rise faster.
Question 5

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

the book value is after tax.

book values are based on replacement costs rather than market values.

book value is related to book figures and market value is related to the future potential as seen by investors.

investors do not understand book value.

book value is not related to dividends.

Question 6

The price/earnings ratio:
Answer

measures the past earning ability of the firm.

is a gauge of future earning power as seen by investors.

relates price to dividends.

relates price to total net income.
Question 7

Which of the following ratios appears most frequently in annual reports?
Answer

Earnings per Share

Return on Equity

Profit Margin

Effective Tax Rate

Debt/Equity
Question 8

Which of the following ratios is rated to be a primary measure of liquidity and the highest significance rating of the liquidity ratios according to commercial loan departments?
Answer

Debt/Equity

Current Ratio

Degree of Financial Leverage

Inventory Turnover in Days

Accounts Receivable Turnover in Days
Question 9

Which of the following ratios is given the highest significance rating by controllers?
Answer

Current Ratio

Earning Per Share

Return on Equity – After Tax

Return on Assets – After Tax

Price/Earnings Ratio
Question 10

There are many definitions or descriptions given to financial failure. Which of the following does not appear to be a reasonable definition or description:
Answer

refinancing of bonds payable.

liquidation.

deferment of payments to short-term creditors.

deferment of payments of interest on bonds.

deferment of payments of principal on bonds

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