The
payout ratio is dividends divided by earnings.
True
False
False
A
major advantage associated with dividend reinvestment plans is forced saving.
True
False
False
Dividend
reinvestment plans are a means to postpone federal income tax on dividends.
True
False
False
Earnings
per preferred share are
|
|
A.
|
the ratio of earnings to number of
preferred shares
|
|
|
|
B.
|
earnings
before interest and taxes
|
|
|
|
C.
|
the
ratio of preferred shares to common shares
|
|
|
|
D.
|
the ratio of EBIT to number of preferred shares
|
|
Firms
with too much debt are undercapitalized.
True
False
False
Preferred
stock generally pays
|
|
A.
|
no
dividend
|
|
|
B.
|
a fixed dividend
|
|
|
C.
|
a
variable dividend
|
|
|
D.
|
a stock
dividend
|
Stockholders
in a publicly held corporation have limited liability.
True
False
False
The
return on assets employs operating income instead of net income.
True
False
False
The
current ratio and the quick ratio are measures of asset usage.
True
False
False
Preferred
stock dividends are
1. a legal obligation
2. not a legal obligation
3. exempt from federal income taxation
4. not exempt from federal income taxation
1. a legal obligation
2. not a legal obligation
3. exempt from federal income taxation
4. not exempt from federal income taxation
|
|
A.
|
2 and 3
|
|
|
B.
|
1 and 3
|
|
|
C.
|
2 and 4
|
|
|
D.
|
1 and 4
|
The
dividend-growth valuation model depends on dividends and the required rate of
return.
True
False
False
According
to the efficient market hypothesis, purchasing low P/S stocks should produce
superior investment results.
True
False
False
The
required rate of return includes the risk-free rate and a risk premium.
True
False
False
An
increase in the risk-free rate will tend to decrease stock prices.
True
False
False
According
to the efficient market hypothesis, purchasing companies with high cash flow
should produce superior investment results.
True
False
False
The
use of price to book ratios to select stocks suggests that
|
|
A.
|
low
price to book stocks are overvalued
|
|
|
B.
|
a stock
should be purchased if it is selling near its historic high price to book
ratio
|
|
|
C.
|
high
price to book stocks should be purchased
|
|
|
D.
|
a stock should be purchased if it is
selling near its historic low price to book ratio
|
The
use of P/E ratios to select stocks suggests that
|
|
A.
|
low P/E
ratio stocks are overvalued
|
|
|
B.
|
a stock
should be purchased if it is selling near its historic high P/E
|
|
|
C.
|
a stock should be purchased if it is
selling near its historic low P/E
|
|
|
D.
|
high
P/E stocks should be purchased
|
If
the financial markets were not efficient,
|
|
A.
|
prices
indicate the proper valuation of securities
|
|
|
B.
|
an investor may consistently outperform
the market
|
|
|
C.
|
all
investors would profit
|
|
|
D.
|
prices
would adjust rapidly
|
A
low price to sales ratio suggests
|
|
A.
|
the
firm has no earnings
|
|
|
B.
|
the
firm is generating cash
|
|
|
C.
|
the stock may be undervalued
|
|
|
D.
|
the
stock valuation is too high
|
Value
investors tend to prefer stocks with low price to sales and price to book
ratios.
True
False
False
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
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
|
|
A.
|
1 and 4
|
|
|
B.
|
2 and 4
|
|
|
C.
|
2 and 3
|
|
|
D.
|
1 and 3
|
The
net profit margin increases as the firm’s interest expense declines.
True
False
False
Preferred
stock pays a fixed amount of interest.
True
False
False
Operating
income is not affected by
|
|
A.
|
cost of
goods sold
|
|
|
B.
|
interest earned
|
|
|
C.
|
depreciation
|
|
|
D.
|
rent payments
|
Most
stockholders of publicly held stock have pre-emptive rights.
True
False
False
The
relationship between a firm and its state of incorporation is specified in the
bylaws.
True
False
False
Which
of the following has no impact on cash flow?
|
|
A.
|
the firm's equity
|
|
|
B.
|
net
income
|
|
|
C.
|
taxes paid
|
|
|
D.
|
depreciation
expense
|
The
ex-dividend date follows the date of record.
True
False
False
Stock
dividends increase
|
|
A.
|
the
firm's equity
|
|
|
B.
|
the
firm's assets
|
|
|
C.
|
the number of shares outstanding
|
|
|
D.
|
the
stock's price
|
A
higher beta decreases the required rate of return.
True
False
False
A
low price to sales ratio suggests
|
|
A.
|
the stock may be undervalued
|
|
|
B.
|
the
firm is generating cash
|
|
|
C.
|
the
firm has no earnings
|
|
|
D.
|
the
stock valuation is too high
|
The
dividend-growth valuation model depends on dividends and the required rate of
return.
True
False
False
An
increase in the risk-free rate will tend to decrease stock prices.
True
False
False
Investors
may use P/E ratios and price/sales ratios to value stocks. If this analysis is
used, which of the following is desirable?
|
|
A.
|
a high
P/E and a high price/sales ratio
|
|
|
B.
|
a low P/E and a low price/sales ratio
|
|
|
C.
|
a high
P/E and a low price/sales ratio
|
|
|
D.
|
a low
P/E and a high price/sales ratio
|
Use
of P/E ratios will not produce superior investment results according to the
|
|
A.
|
all
forms of the efficient market hypothesis
|
|
|
B.
|
strong
form of the efficient market hypothesis
|
|
|
C.
|
semi-strong form of the efficient market
hypothesis
|
|
|
D.
|
weak
form of the efficient market hypothesis
|
If
the anticipated return exceeds the required rate of return, the investor should
buy the stock.
True
False
False
The
dividend-growth model requires that dividends grow annually at the same rate.
True
False
False
According
to the efficient market hypothesis, purchasing high P/E stock should not
produce superior investment results.
True
False
False
If
the financial markets were not efficient,
|
|
A.
|
all
investors would profit
|
|
|
B.
|
prices
would adjust rapidly
|
|
|
C.
|
an investor may consistently outperform
the market
|
|
|
D.
|
prices
indicate the proper valuation of securities
|
Which
of the following is a cash outflow?
|
|
A.
|
splitting
the stock two for one
|
|
|
B.
|
acquiring inventory
|
|
|
C.
|
retaining
earnings
|
|
|
D.
|
switching
from straight-line depreciation to accelerated depreciation
|
High
P/E stocks should be preferred because they pay larger dividends.
True
False
False
A
stock's price will tend to fall if
1. the firm's beta declines
2. the firm's beta increases
3. the risk-free rate declines
4. the risk-free rate increases
1. the firm's beta declines
2. the firm's beta increases
3. the risk-free rate declines
4. the risk-free rate increases
|
|
A.
|
2 and 3
|
|
|
B.
|
1 and 4
|
|
|
C.
|
2 and 4
|
|
|
D.
|
1 and 3
|
If
the ratio of price to book exceeds 1.0,
|
|
A.
|
the
stock is overvalued
|
|
|
B.
|
the
accounting value of the firm is greater than the market value of the
firm
|
|
|
C.
|
the price of the stock is greater than the
accounting value of the firm
|
|
|
D.
|
the
firm's assets are understated
|
According
to the efficient market hypothesis, purchasing high P/E stock should not
produce superior investment results.
True
False
False
If
the required rate of return is 10 percent and the stock pays a fixed $5
dividend, its value is
|
|
A.
|
$50
|
|
|
B.
|
$75
|
|
|
C.
|
$25
|
|
|
D.
|
$100
|
Analysis
of preferred stock uses
|
|
A.
|
operating
income (EBIT)
|
|
|
B.
|
earnings after taxes
|
|
|
C.
|
earnings
after dividends to common stock
|
|
|
D.
|
earnings
after interest but before taxes
|
The
more financially leveraged a firm, the smaller is its debt ratio.
True
False
False
The
relationship between a firm and its state of incorporation is specified in the
bylaws.
True
False
False
Stockholders
generally have which of the following rights?
1. right to vote
2. right to share in the firm's earnings
3. right to sell the stock
1. right to vote
2. right to share in the firm's earnings
3. right to sell the stock
|
|
A.
|
1 and 3
|
|
|
B.
|
all of the above
|
|
|
C.
|
2 and 3
|
|
|
D.
|
1 and 2
|
The
proportion of a firm's assets that are financed by debt is measured by the debt
ratio.
True
False
False
Earnings
are
|
|
A.
|
retained and/or distributed
|
|
|
B.
|
distributed
|
|
|
C.
|
retained
|
|
|
D.
|
invested
|
Which
of the following is a cash outflow?
|
|
A.
|
retaining
earnings
|
|
|
B.
|
switching
from straight-line depreciation to accelerated depreciation
|
|
|
C.
|
splitting
the stock two for one
|
|
|
D.
|
acquiring inventory
|
A
times-interest-earned of 0.9 means that interest will not be paid.
True
False
False
Which
of the following occurs when a stock is split two-for-one?
|
|
A.
|
the price of the stock decreases
|
|
|
B.
|
the
firm’s equity decreases
|
|
|
C.
|
the
firm's liabilities decrease
|
|
|
D.
|
the
firm's assets decrease
|
Stockholders
generally have which of the following rights?
1. right to vote
2. right to share in the firm's earnings
3. right to sell the stock
1. right to vote
2. right to share in the firm's earnings
3. right to sell the stock
|
|
A.
|
all of the above
|
|
|
B.
|
1 and 3
|
|
|
C.
|
1 and 2
|
|
|
D.
|
2 and 3
|
The
gross profit margin on sales tends to exceed the operating profit margins on
sales.
True
False
False
Pre-emptive
rights permit stockholders to
|
|
A.
|
participate
in dividend reinvestment plans
|
|
|
B.
|
vote
their shares
|
|
|
C.
|
maintain the proportionate share of
ownership
|
|
|
D.
|
collect
dividends before they are reinvested
|
Preferred
stock is legally equity and represents ownership.
True
False
False
A
one-for-two reverse split increases a stock’s price.
True
False
False
Repurchases
of shares may be viewed as an alternative to paying cash dividends.
True
False
False
Stock
splits and stock dividends increase the earning capacity of the firm.
True
False
False
The
dividend-growth model requires that dividends grow annually at the same rate.
True
False
False
If
the required rate of return is 10 percent and the stock pays a fixed $5
dividend, its value is
|
|
A.
|
$100
|
|
|
B.
|
$25
|
|
|
C.
|
$50
|
|
|
D.
|
$75
|
The
expected return depends on future dividends and future price appreciation.
True
False
False
The
required rate of return includes the risk-free rate and a risk premium.
True
False
False
According
to the efficient market hypothesis, purchasing high P/E stock should not
produce superior investment results.
True
False
False
According
to the efficient market hypothesis, purchasing companies with high cash flow
should produce superior investment results.
True
False
False
According
to the efficient market hypothesis, purchasing low P/S stocks should produce
superior investment results.
True
False
False
Value
investors tend to prefer stocks with low price to sales and price to book
ratios.
True
False
False
If
the anticipated return exceeds the required rate of return, the investor should
buy the stock.
True
False
False
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