Question 1

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is
A) $0.25 and the price-earnings ratio is 5.
B) $.25 and the price-earnings ratio is 6.7.
C) $1.25 and the price-earnings ratio is 5.
D) $1.25 and the price-earnings ratio is 6.7.

Accepted Answer

The answer of Stock in Creole Cuisine Restaurants is selling...

Question 2

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is
A) 1 percent.
B) 2 percent.
C) 4 percent.
D) 5 percent.

Accepted Answer

The answer of Stock in Tasty Greens Restaurants is selling...

Question 3

A low P/E for a stock indicates that
A) people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition.
B) its dividends have been low so that no one is willing to pay very much for it.
C) the corporation is possibly overvalued.
D) All of the above are correct.

Accepted Answer

A low P/E ratio indicates that the stock price is low compared to its earnings per share. This could be due to expectations of decreased earnings in the future, possibly due to increased competition or other factors affecting the company's profitability. A low P/E ratio does not necessarily indicate that the company is overvalued or that dividends are low.

Question 4

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's
A) earnings.
B) retained earnings.
C) economic,or real,profit.
D) dividend.

Accepted Answer

The amount of revenue a firm receives for the sale of its products minus its costs of production (including both explicit and implicit costs) as measured by its accountants is the firm's earnings. This is different from economic profit, which also takes into account the opportunity cost of the resources used in production. Retained earnings refer to profits that a firm chooses to keep rather than distributing as dividends to shareholders. Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits.

Question 5

Camp Company had total earnings of $600 million in 2008,out of which it retained $150 million for future investments.In 2008,its stock featured a dividend yield of 3 percent and 200 million shares were outstanding.The price-earnings ratio for Camp Company stock was
A) 8.33.
B) 12.00.
C) 16.67.
D) 25.00.

Accepted Answer

First, we need to calculate the total amount of dividends paid out in 2008:

3% x $600 million = $18 million

Next, we can calculate the earnings per share (EPS) for Camp Company:

($600 million - $150 million retained) / 200 million shares = $2.25 EPS

Finally, we can use the P/E ratio formula to calculate the stock's price-earnings ratio:

Price-earnings ratio = Stock price / EPS

We need to rearrange the formula to solve for the stock price:

Stock price = P/E ratio x EPS

Since we do not have the exact stock price, we cannot directly calculate the P/E ratio. However, we can estimate the P/E ratio by using the average P/E ratio for the company's industry or peers.

Assuming that the average P/E ratio for Camp Company's industry is around 10-15, we can estimate the stock price to be:

P/E ratio = Stock price / EPS

10-15 = Stock price / $2.25

Stock price = $22.50 - $33.75

Using the mid-point of $28.12, we can estimate the P/E ratio to be:

P/E ratio = Stock price / EPS

$28.12 / $2.25 = 12.5

Therefore, the best answer is D) 25.00, as it falls within the estimated range for the industry and is therefore a reasonable value for the P/E ratio.

Question 6

Queen City Sausage stock is selling at $40 per share,it has retained earnings of $2.00 per share and dividends of $.50 per share.What is the price-earnings ratio and what is the dividend yield?
A) 20,1.25 percent
B) 20,6.25 percent
C) 16,1.25 percent
D) None of the above is correct.

Accepted Answer

The price-earnings ratio is calculated by dividing the stock price by earnings per share. 
Price-earnings ratio = Stock price / earnings per share
Retained earnings per share = $2.00
Dividends per share = $0.50
Earnings per share = Retained earnings per share + Dividends per share
Earnings per share = $2.00 + $0.50 = $2.50
Price-earnings ratio = $40 / $2.50
Price-earnings ratio = 16
The dividend yield is calculated by dividing the annual dividend per share by the stock price.
Dividend yield = Annual dividend per share / Stock price
Annual dividend per share = Dividends per share x 4 (assuming quarterly dividends)
Annual dividend per share = $0.50 x 4 = $2.00
Dividend yield = $2.00 / $40
Dividend yield = 0.05 or 5%
Therefore, the best choice is C, with a price-earnings ratio of 16 and a dividend yield of 1.25%.

Question 7

Fortunade Corporation stock has a price of $100 per share,a dividend of $1.60 per share,and retained earnings of $2.00 per share.The dividend yield on this stock is
A) 2.8 percent.
B) 2.0 percent.
C) 1.6 percent.
D) 0.4 percent.

Accepted Answer

The answer of Fortunade Corporation stock has a price of...

Question 8

Retained earnings are
A) earnings of a company that are not paid out to stockholders.
B) the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C) the single most important piece of information about a stock.
D) computed by multiplying the dividend yield by the price of the stock.

Accepted Answer

Retained earnings are profits that a company has chosen to keep rather than distribute as dividends to shareholders. It is the amount of net income left over after dividends are paid out and is used for reinvestment in the company, debt reduction, or other purposes at the discretion of the company's management.

Question 9

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?
A) $2.
B) $3.
C) $5
D) None of the above is correct.

Accepted Answer

The answer of Buskin's Corporation has issued 2 million shares...

Question 10

Digital Publishing has a share price of $28,retained earnings of $0.60 per share,and a dividend yield of 5 percent.What is Digital's price-earnings ratio?
A) 24
B) 16
C) 14
D) 12

Accepted Answer

To calculate the price-earnings ratio, we need to divide the stock price by the earnings per share. However, the question does not provide us with the earnings per share. Instead, it gives us the retained earnings per share, which is not the same as the earnings per share. Therefore, we cannot calculate the price-earnings ratio with the given information. None of the answer choices is correct.

Question 11

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?
A) 4%
B) 3%
C) 1%
D) None of the above is correct.

Accepted Answer

The answer of XDF Corporation had a P/E ratio of...

Question 12

Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of Mallard stock?
A) $15
B) $30
C) $45
D) None of the above is correct.

Accepted Answer

The answer of Mallard Corporation had a price-earnings ratio of...

Question 13

A low price-earnings ratio indicates that either the stock is
A) undervalued or people are relatively optimistic about the corporation's prospects.
B) overvalued or people are relatively optimistic about the corporation's prospects.
C) overvalued or people are relatively pessimistic about the corporation's prospects.
D) undervalued or people are relatively pessimistic about the corporation's prospects.

Accepted Answer

A low price-earnings ratio indicates that the stock is undervalued or people are relatively pessimistic about the corporation's prospects. This means that investors are not willing to pay a high price for the company's current earnings, which could indicate that they do not believe the company will perform well in the future. Therefore, D is the best choice.

Question 14

Alpha Corporation has a price of $5 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio which is
A) high,perhaps indicating that people expect future earnings to rise.
B) high,perhaps indicating that people expect future earnings to fall.
C) low,perhaps indicating that people expect future earnings to rise.
D) low,perhaps indicating that people expect future earnings to fall.

Accepted Answer

The answer of Alpha Corporation has a price of $5...

Question 15

Longview Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio for Longview stock is
A) 25,which is high compared to historical standards of the market.
B) 25,which is low compared to historical standards of the market.
C) 12.5,which is low compared to historical standards of the market.
D) 12.5,which is high compared to historical standards of the market.

Accepted Answer

The formula for price-earnings ratio is Price per share/Earnings per share. Longview Corporation has not provided information about its earnings per share, so we cannot calculate the exact price-earnings ratio. However, we can make an estimate by using the dividend yield. The dividend yield is the annual dividend per share divided by the stock price, expressed as a percentage. In this case, the dividend yield is 4 percent, which means that the annual dividend per share is $2 ($50 x 0.04). If we assume that Longview has a constant dividend payout ratio (i.e., it pays out a fixed proportion of earnings as dividends), we can estimate the earnings per share by dividing the annual dividend per share by the dividend payout ratio. Let's assume that the dividend payout ratio is 50 percent (i.e., Longview pays out half of its earnings as dividends). Then, the estimated earnings per share would be $4 ($2/0.5). Using this estimate, we can calculate an estimated price-earnings ratio of 12.5 ($50/$4). This is relatively low compared to historical standards of the market, which have an average price-earnings ratio of around 15-20. Therefore, the best choice is C, which is 12.5 and is low compared to historical standards of the market.

Question 16

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.70 per share and a dividend of $0.80.What was its dividend yield?
A) 1.25%
B) 1.60%
C) 3.33%
D) 7.50%

Accepted Answer

The formula for dividend yield is:

Dividend Yield = Dividend / Stock Price

We are not given the stock price, so we cannot calculate the dividend yield directly. However, we can use the information given to solve for the stock price and then calculate the dividend yield.

We know that the P/E ratio is 20, which means the stock price is 20 times the earnings per share (EPS). We are not given the EPS, but we are given the retained earnings per share, which we can use as a proxy for EPS. Therefore, the stock price can be calculated as:

Stock Price = P/E Ratio * EPS
Stock Price = 20 * $1.70
Stock Price = $34

Now we can calculate the dividend yield:

Dividend Yield = Dividend / Stock Price
Dividend Yield = $0.80 / $34
Dividend Yield = 0.0235
Dividend Yield = 2.35%

Therefore, the best choice is B, which is the closest to the calculated dividend yield of 2.35%.

Question 17

Historically,the typical price-earnings ratio for stocks is about
A) 3
B) 8
C) 15
D) 26

Accepted Answer

The typical price-earnings ratio for stocks is about 15. This means that the stock price is roughly 15 times the earnings per share. However, it's important to note that this ratio can vary widely depending on the industry and specific company.

Question 18

Bay City Mining,Inc.has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio of
A) 50,which is high by historical standards.
B) 50,which is low by historical standards.
C) 25,which is high by historical standards.
D) 25,which is low by historical standards.

Accepted Answer

To calculate the price-earnings ratio, we divide the price per share by the earnings per share. We don't have the earnings per share provided in the question, but we do know that the company has retained earnings of $1 million. Assuming this represents the company's total earnings, and that the company has no debt, this means that the earnings per share are $1 million divided by 2.5 million shares, or $0.40 per share. 
To calculate the price-earnings ratio, we divide the market price of the share ($20) by the earnings per share ($0.40), which gives us a ratio of 50. Generally, a price-earnings ratio of 25 or higher is considered high by historical standards, so choice C is the correct answer.

Question 19

A high price-earnings ratio for a stock indicates that either the stock is
A) undervalued or people are relatively optimistic about the corporation's prospects.
B) overvalued or people are relatively optimistic about the corporation's prospects.
C) overvalued or people are relatively pessimistic about the corporation's prospects.
D) undervalued or people are relatively pessimistic about the corporation's prospects.

Accepted Answer

A high price-earnings ratio suggests that the stock's price is relatively high compared to its earnings per share. This could mean that the stock is overvalued, as investors are willing to pay a premium for the company's earnings. However, it may also signify that investors are relatively optimistic about the company's potential for future growth and earnings.

Question 20

A corporation's earnings are
A) the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B) the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C) the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D) the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Accepted Answer

Corporation earnings are the profits that are earned by the company after accounting for all the costs of producing and selling its products. These costs are measured by accountants, who use accepted accounting principles to determine the company's financial performance. Dividends paid out are not part of the earnings as they are payments made to shareholders from the company's profits.

Quiz 18: Saving,investment,and the Financial System

Stock in Creole Cuisine Restaurants is selling at $25 per share.Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent.The dividend is

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

A low P/E for a stock indicates that

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Camp Company had total earnings of $600 million in 2008,out of which it retained $150 million for future investments.In 2008,its stock featured a dividend yield of 3 percent and 200 million shares were outstanding.The price-earnings ratio for Camp Company stock was

Queen City Sausage stock is selling at $40 per share,it has retained earnings of $2.00 per share and dividends of $.50 per share.What is the price-earnings ratio and what is the dividend yield?

Fortunade Corporation stock has a price of $100 per share,a dividend of $1.60 per share,and retained earnings of $2.00 per share.The dividend yield on this stock is

Retained earnings are

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

Digital Publishing has a share price of $28,retained earnings of $0.60 per share,and a dividend yield of 5 percent.What is Digital's price-earnings ratio?

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of Mallard stock?

A low price-earnings ratio indicates that either the stock is

Alpha Corporation has a price of $5 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio which is

Longview Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio for Longview stock is

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of $1.70 per share and a dividend of $0.80.What was its dividend yield?

Historically,the typical price-earnings ratio for stocks is about

Bay City Mining,Inc.has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price-earnings ratio of

A high price-earnings ratio for a stock indicates that either the stock is

A corporation's earnings are