Deck 8: Stock Private

Question 1

If a firm retains earnings, total equity increases.

Answer 1

True

Question 2

If a firm operates at a loss, its retained earningsare decreased.

Answer 2

True

Question 3

Corporate retained earnings are taxed on theindividual investor's federal income form.

Answer 3

False

Question 4

Some firms have more than one class of common stock.

Question 5

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

Question 6

A two for one stock split doubles the number of shares and their price.

Question 7

The price of a stock generally adjusts downward forthe distribution of dividends.

Question 8

Both corporate earnings and cash dividends receivedby stockholders are taxed by the federal government.

Question 9

Dividend increases usually occur prior to an increase in earnings.

Question 10

The ex dividend date follows the date of record.

Question 11

If an investor buys stock on the ex dividend date,that individual will not receive the dividend.

Question 12

Cash dividends are subject to federal income taxes.

Question 13

If stockholders receive dividends in their traditional individual retirement account, the income tax is deferred.

Question 14

Most stockholders of publicly held stock have pre emptive rights.

Question 15

Stock dividends reduce the firm's total equity.

Question 16

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

Question 17

The payout ratio is dividends divided by earnings.

Question 18

Stockholders in a publicly held corporation havelimited liability.

Question 19

Cumulative voting gives more power to minoritystockholders.

Question 20

Stock dividends increase the firm's cash.

Question 21

Preferred stock dividends are usually cumulative.

Question 22

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

Question 23

The quick ratio is a better measure of liquidity than the current ratio for manufacturers.

Question 24

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

Question 25

A one for two reverse split increases a stock's price but not its total value.

Question 26

The current ratio and the quick ratio are measures of asset usage.

Question 27

If accounts receivable are collected, the quick ratio is unaffected.

Question 28

Preferred stock pays a fixed amount of interest.

Question 29

If inventory is sold for cash, inventory turnover is increased, but inventory turnover is not affected if inventory is sold on credit.

Question 30

Since preferred stock represents equity, it generally has the right to vote.

Question 31

If the firm's current ratio exceeds 1:1 and the firmretires an account payable, the quick ratio increases.

Question 32

If a cumulative preferred stock pays a dividend, it is said to be in arrears.

Question 33

A higher payout ratio implies a lower growth rate.

Question 34

Stock splits and stock dividends increase the earning capacity of the firm.

Question 35

A major advantage associated with dividend reinvestment plans is forced saving.

Question 36

An inventory turnover of 3.0 suggests that inventoryis sold every four months.

Question 37

The quick ratio excludes inventory, plant, and equipment.

Question 38

If a firm's inventory turnover is 4 and days sales outstanding (average collection period) is 60, then it takes approximately five months for newly acquired inventory to generate cash.

Question 39

Repurchases of shares may be viewed as an alternative to paying cash dividends.

Question 40

Preferred stock is legally equity and representsownership.

Question 41

The proportion of a firm's assets that are financed by debt is measured by the debt ratio.

Question 42

The return on equity measures earnings before interest and taxes.

Question 43

A times interest earned of 0.9 means that interest will not be paid.

Question 44

The net profit margin increases as the firm's interest expense declines.

Question 45

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

Question 46

An increase in retained earnings will increase the debt to equity ratio.

Question 47

The return on assets employs operating income instead of net income.

Question 48

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

Question 49

When a firm makes a profitable sale, its total assets increase.

Question 50

Firms with too much debt are undercapitalized.

Question 51

Cash flow depends on depreciation as well as thefirm's earnings.

Question 52

The greater the numerical value of the debt ratio, the riskier the firm.

Question 53

The gross profit margin on sales tends to exceed the operating profit margins on sales.

Question 54

If the ratio of debt to equity increases, the proportion of assets financed by debt is increased.

Question 55

Lower depreciation increases earnings and cash flow.

Question 56

Lower cash flow may be the result of higher depreciation expense.

Question 57

Coverage ratios may be used to measure the safety ofdebt and other fixed obligations.

Question 58

An increase in an asset is a cash inflow.

Question 59

The statement of cash flow places emphasis on management's ability to retire debt.

Question 60

An increase in assets financed by equity increases the debt ratio.

Question 61

If a firm has substantial excess cash, it may1. repurchase some of its shares2. increase its cash dividends3. increase its liabilities

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) only 2

Question 62

Analysis of preferred stock uses

A) operating income (EBIT)
B) earnings after dividends to common stock
C) earnings after taxes
D) earnings after interest but before taxes

Question 63

Cash dividends1. are paid from earnings2. increase the capacity of the firm to grow3. reduce the firm's assets

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 64

Stock dividends cause

A) the price of a share of stock to rise
B) the price of a share of stock to fall
C) the value of the firm to rise
D) the value of the firm to fall

Question 65

Dividend policy depends on1. the firm's earnings2. investment opportunities available to the firm3. corporate income taxes

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 66

The procedure for the distribution of dividendsdoes not include

A) the ex?dividend date
B) the date of record
C) the settlement date
D) the date of announcement

Question 67

Which of the following occurs when a stock is splittwo for one

A) the price of the stock decreases
B) the firm's assets decrease
C) the firm's liabilities decrease
D) the firm's equity decreases

Question 68

Advantages of the corporate form of business include

A) limited liability for stockholders
B) avoidance of state taxation
C) limited life
D) deductibility of dividends

Question 69

Preferred stock and long term bonds are similarbecause

A) they both have voting power
B) interest and dividend payments are fixed
C) interest and dividend payments are legal obligations
D) interest and dividend payments are tax?deductible expenses

Question 70

Stockholders generally have which of the followingrights 1. right to vote2. right to share in the firm's earnings3. right to sell the stock

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of the above

Question 71

Which of the following occurs when a 10 percentstock dividend is paid

A) the firm's retained earnings decrease
B) the firm's equity is increased
C) the stock's par value is decreased
D) the stock's price is increased

Question 72

Dividend reinvestment plans offer which advantages 1. deferment of federal income taxes2. a convenient means to accumulate shares3. dollar cost averaging

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all three

Question 73

The current ratio is unaffected by

A) using cash to retire an account payable
B) the collection of an account receivable
C) selling inventory for a profit
D) selling bonds and using the funds to finance inventory

Question 74

Stock dividends increase

A) the number of shares outstanding
B) the firm's assets
C) the firm's equity
D) the stock's price

Question 75

Preferred stock dividends are1. a legal obligation2. not a legal obligation3. exempt from federal income taxation4. not exempt from federal income taxation

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4

Question 76

Pre emptive rights permit stockholders to

A) collect dividends before they are reinvested
B) participate in dividend reinvestment plans
C) maintain the proportionate share of ownership
D) vote their shares

Question 77

Preferred stock generally pays

A) a variable dividend
B) a fixed dividend
C) a stock dividend
D) no dividend

Question 78

Earnings are

A) retained
B) distributed
C) invested
D) retained and/or distributed

Question 79

Earnings per preferred share are

A) earnings before interest and taxes
B) the ratio of earnings to number of preferred shares
C) the ratio of EBIT to number of preferred shares
D) the ratio of preferred shares to common shares

Question 80

Cumulative voting permits a stockholder to

A) collect extra dividends
B) vote all the shares for one individual
C) cast the total number of votes for one individual
D) vote by proxy