BUS 401 Week 4

1. JP Corp. has a retained earnings balance of $1,000,000. The company reported net income of $300,000, sales of $2,000,000, and had 100,000 shares of common stock outstanding. The company announced a dividend of $1 per share. Therefore, the company’s dividend payout ration is ___.

a. 10% b. 33.3%  c. 50% d. 100%

2. Financial leverage could mean financing some of a firm’s assets with ___.

a. Common stock b. Retained earnings c. Corporate bonds d. Sales revenue

3. Dividend policy is influenced by ___.

a. A company’s investment opportunities.

b. A firm’s capital structure mix.

c. A company’s availability of internally generated funds.

d. All of the above.

4. The break even point in sales dollars is convenient if ___.

a. The firm sells a large amount of one product

b. The firm deals with more than one product

c. The price per unit is very low

d. Depreciation expense is high

5. Which of the following will result from a stock repurchase?

a. Earnings per share will rise

b. Number of shares will increase

c. Corporate cash is conserved

d. Ownership is diluted

6. Stock dividends ___.

a. Decrease stock prices because no cash goes to shareholders but companies pay transaction costs

b. May increase stock prices if the dividend is used to maintain an optimal trading range for common stock.

c. May increase stock prices if investors perceive the dividend as containing favorable information about the firm’s future prospects.

d. Both b and c are true.

7. Break even analysis is used to study the effect on EFT of changes in all of the following except:

a. Corporate taxes

b. Prices

c. Cost structure

d. Volume

8. The final approval of a dividend payment comes from ___.

a. The controller

b. The president of the company

c. The board of directors

d. It is a joint decision requiring approval from all of the above.

9. Dividends generally ___.

a. Are paid as a fixed percentage of earnings

b. Fluctuate more than earnings

c. Are guaranteed by the SEC

d. Are more stable than earnings

10. A justification for no dividend payments that would be pleasing to shareholders could be ___.

a. Insufficient cash available for dividend payments

b. Positive NPQ investment projects that require the firm to retain cash for investment purposes

c. An investor clientele that prefers current liquidity

d. Cash will be used for a stock dividend

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