Deck 8: Stockprivate

Question 1

Most stockholders of publicly held stock have pre?emptive rights.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

The payout ratio is dividends divided by earnings.

Answer 3

True

Question 4

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

Question 5

Some firms have more than one class of common stock.

Question 6

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

Question 7

Dividend increases usually occur prior to an increase in earnings.

Question 8

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

Question 9

Stock dividends increase the firm's cash.

Question 10

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

Question 11

Cumulative voting gives more power to minority
stockholders.

Question 12

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

Question 13

Stock dividends reduce the firm's total equity.

Question 14

Cash dividends are subject to federal income taxes.

Question 15

Stockholders in a publicly held corporation have
limited liability.

Question 16

If a firm retains earnings, total equity increases.

Question 17

The ex?dividend date follows the date of record.

Question 18

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

Question 19

If a firm operates at a loss, its retained earnings
are decreased.

Question 20

The price of a stock generally adjusts downward for
the distribution of dividends.

Question 21

Preferred stock dividends are usually cumulative.

Question 22

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

Question 23

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

Question 24

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

Question 25

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 26

A higher payout ratio implies a lower growth rate.

Question 27

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

Question 28

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

Question 29

Preferred stock pays a fixed amount of interest.

Question 30

Preferred stock is legally equity and represents
ownership.

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

The quick ratio excludes inventory, plant, and equipment.

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

Cash flow depends on depreciation as well as the
firm's earnings.

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

The return on equity measures earnings before interest and taxes.

Question 49

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

Question 50

Lower depreciation increases earnings and cash flow.

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

Firms with too much debt are undercapitalized.

Question 57

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

Question 58

An increase in an asset is a cash inflow.

Question 59

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

Question 60

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

Question 61

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

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

Question 62

Preferred stock generally pays

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

Question 63

Dividend policy depends on
1) the firm's earnings
2) investment opportunities available to the firm
3) corporate income taxes

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

Question 64

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 65

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 66

If a firm has substantial excess cash, it may
1) repurchase some of its shares
2) increase its cash dividends
3) increase its liabilities

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

Question 67

Preferred stock and long?term bonds are similar
Because

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 68

Dividend reinvestment plans offer which advantages?
1) deferment of federal income taxes
2) a convenient means to accumulate shares
3) dollar cost averaging

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

Question 69

Which of the following occurs when a stock is split
Two?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 70

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 71

Cash dividends
1) are paid from earnings
2) increase the capacity of the firm to grow
3) reduce the firm's assets

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

Question 72

Which of the following occurs when a 10 percent
Stock 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 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

The procedure for the distribution of dividends
Does not include

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

Question 76

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

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

Question 77

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

Question 78

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 79

Earnings are

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

Question 80

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