Q&A Hero

Q: "Character," which is one of the traditional "five C's" of credit analysis, refers to a. the ability of the applicant to meet its financial obligations (i.e., liquidity and cash flow) b. the general economic climate and its effect on the applicant's ability to pay c. the applicant's willingness to meet financial obligations. d. the financial strength of the applicant (i.e., net worth)

Q: "Capacity," which is one of the traditional "five C's" of credit analysis, refers to a. the general economic climate and its effect on the applicant's ability to pay b. the willingness of the applicant to meet its financial obligations c. the financial strength of the applicant (i.e., net worth) d. the applicant's ability to meet financial obligations.

Q: The most widely known credit reporting organization is: a. Moody's b. Standard and Poors c. National Association of Credit Management d. Dun and Bradstreet

Q: The objective of offering seasonal datings to customers is to a. encourage customers to place their orders prior to the peak selling period b. speed up the collection of accounts receivable c. increase the firm's inventory storage costs d. extend a cash discount

Q: Lengthening the credit period is likely to result in all of the following except a. higher sales b. more cash sales c. larger investment in receivables d. longer average collection period

Q: The primary objective of offering a cash discount is to a. reduce the firm's level of receivables investment b. reduce the number of bad checks received from customers c. encourage customers to place their orders prior to the peak selling period d. offer good will.

Q: Which of the following is nota cost related to the extension of credit to customers? a. bad-debt losses b. cash discounts c. quantity discounts d. collection costs

Q: The average collection period measures the: a. number of days between when a typical credit sale is made and when the firm receives the payment b. number of days it takes a typical check to "clear" through the banking system c. number of days beyond the end of the credit period before a typical customer payment is received d. number of days before a typical account becomes delinquent

Q: Which of the following is(are) not related to the extension of credit to customers? a. compensating balances b. cash discounts c. quantity discounts d. both compensating balances and quantity discounts

Q: The ____ measures the promptness with which customers repay their credit obligations. a. bad-debt loss ratio b. average collection period c. credit term d. cash discount

Q: ____ are useful in monitoring the status and composition of a firm's accounts receivable. a. Numerical credit scoring systems b. Aging of accounts schedules c. Seasonal datings d. Sending notices

Q: Possible sources of relevant information about a credit applicant include a. financial statements submitted by the applicant b. credit reporting organizations c. U.S. Department of Commerce d. financial statements submitted by applicants, and credit reporting organizations

Q: The credit policy variables that a firm can use to exercise control over its level of receivables investment include a. credit standards b. credit terms c. collection effort d. All of these answers are correct.

Q: A ____ is a security issued by a commercial bank which entitles the holder to receive the amount deposited plus accrued interest on a specified date. a. negotiable certificate of deposit b. commercial paper c. banker's acceptance d. repurchase agreement

Q: A(n) ____ is an unsigned, nonnegotiable check drawn on the local collection bank and payable to the concentration bank. a. pre-authorized check b. bankers acceptance check c. special remittance d. mail depository transfer check

Q: There is a(n) ____ relationship between a firm's liquid asset balance and "shortage" costs. a. direct b. no c. inverse d. very small

Q: The first step in efficient cash management is the development of a ____. a. liquid asset balance b. cash budget c. proforma cash flow statement d. compensating spreadsheet

Q: What is the signaling effect of a change in dividends?

Q: Concin has the following equity accounts on its balance sheet:Common stock ($0.25 par, 9 million shares)$ 2,250,000Contributed capital in excess of par89,400,000Retain earnings67,503,189$159,153,189The current market price for a share of Concin's stock is $24.25. If the firm declares a 10% stock dividend and a $0.06 per share cash dividend, what will be the impact on Common stock on the above equity account?a. no changeb. increase of $225,000c. increase of $54,000d. increase of $21,600,000

Q: Urguhart has just declared a 4 for 3 stock split. If the pre-split price of common stock was $54 a share, what do you expect the post-split price will be? a. $72.00 b. $36.18 c. $42.23 d. $40.50

Q: Sadaplast has just declared a 25 percent stock dividend. The annual dividend, before the stock dividend was declared, was $1.00. Sadaplast intends to pay a dividend of $1.05 per share after the stock dividend is paid. What is the percentage increase in the cash dividend that will accompany the stock dividend? a. 6.25% b. 26.25% c. 31.25% d. 5.00%

Q: Metromat has the following equity accounts on its balance sheet:Common stock ($2 par, 2.4 million shares)$ 4,800,000Contributed capital in excess of par33,600,000Retained earnings134,400,000Total common stockholders' equity$172,800,000The current market price of Metromat's shares is $16. If the firm declares a 15% stock dividend and a $0.15 per share cash dividend, what will be the impact on contributed capital in excess of par? Assume a marginal tax rate of 40%.a. decreases $2.56 millionb. increases $5.04 millionc. increases $5.76 milliond. does not change

Q: Wrenn Corp. has 5.6 million shares outstanding, interest expenses of $4.4 million, and depreciation expenses of $3.7 million. What is Wrenn's operating income if the dividend per share is $0.80 and the dividend payout ratio is 35%? Assume a marginal tax rate of 40%. a. $15.89 million b. $25.73 million c. $21.33 million d. $29.43 million

Q: If Sulzer has 10 million shares outstanding, operating income (EBIT) of $42.4 million, and interest expenses of $6.8 million, what is Sulzer's dividend payout ratio, given that the dividend per share is $0.80? Assume a marginal tax rate of 40%. a. 56.3% b. 31.5% c. 50.4% d. 37.5%

Q: Leigh Fibers has 6 million shares outstanding. This year Leigh will have operating income (EBIT) of $36.4 million, interest expenses of $5.8 million, and depreciation expenses of $6.2 million. What will be Leigh's dividend per share if the company has a payout ratio of 30%? Assume a marginal tax rate of 40%. a. $0.92 b. $0.73 c. $1.09 d. $0.61

Q: Zimmer Corp. has just declared a 5 for 4 stock split. If the pre-split price of common stock was $36 a share, what will be the post-split price per share (assuming no other changes occur)? a. $30.00 b. $27,00 c. $28.80 d. $32.00

Q: Omega Sports has the following equity accounts on its balance sheet:Common stock ($0.50 par, 900,000 shares)$ 450,000Contributed capital in excess of par5,580,000Retained earnings21,204,000Total common stockholders' equity$27,234,000The current market price of the firm's shares is $20. If the firm declares a 10 percent stock dividend and a cash dividend of $0.10 per share, the retained earning account would change to ____.a. $21,060,000b. $19,305,000c. $25,335,000d. $19,404,000

Q: Zycad has operating earnings (EBIT) of $8.6 million and annual interest expenses are $1.5 million. Zycad wishes to maintain its annual dividend of $1.00 per share on the 1,900,000 shares outstanding. The firm has a bond issue outstanding that requires the retirement of $3 million (face value) of the issue each year through purchases of the bonds in the market. What is the maximum dividend per share that may be paid if the current market price of the bonds is $85? Assume the marginal tax rate is 40% and that earnings are the only source of funds that can be used to pay the dividend and retire the bonds. a. $0.66 b. $0.16 c. $1.37 d. $0.90

Q: Interim Systems has 1.5 million shares outstanding. This year Interim will have operating income (EBIT) of $18.2 million, interest expenses of $2.4 million, depreciation expenses of $3.1 million. What will the dividend per share be if Interim's dividend payout ratio is 40%? Assume a marginal tax rate of 40%. a. $2.53 b. $3.39 c. $2.03 d. $6.32

Q: The Barden Corporation has the following equity accounts on its balance sheet:Common Stock ($1.25 par, 3,000,000 shares)$ 3,750,000Contributed capital in excess of par24,250,000Retained earnings153,600,000Total common stockholders' equity$181,600,000What is the maximum amount of dividends per share that may be paid by the Barden Corp. if the capital impairment provisions of state law are limited to the par value and the capital in excess of par accounts?a. $59.28b. $51.20c. $60.53d. $ 8.08

Q: Kaneb Services, Inc. has just declared a 3 for 2 stock split. If the pre-split price of common stock was $42 a share, what will be the post-split price per share (assuming no other changes occur). a. $31.50 b. $26.25 c. $25.15 d. $28.00

Q: Kaneb Services, Inc. has just declared a 3 for 2 stock split. The company's pre-split common stockholders' equity was as follows:Common stock($1.25 par, 2,000,000 shares)$ 2,500,000Contributed capital in excess of par$ 17,500,000Retained earnings182,100,000Total common stockholders' equity$202,100,000If the pre-split price of common stock was $42, what will be the amount of retained earnings after the split?a. $140,100,000b. $139,200,000c. $182,100,000d. $141,350,000

Q: Peterson Company expects earnings per share and dividends per share to be $4.50 and $2.50 respectively next year. Peterson currently has 5,000,000 shares of common stock outstanding. The company's capital budget for next year is projected to be $25,000,000. Peterson plans to maintain its present debt ratio (debt to total assets) at 40% next year. (Assume that Peterson's capital structure includes only common equity and debt and that these will be the only sources of funds to finance capital budgeting projects next year.) Determine how much external equity the company must raise to finance its capital budget. a. $15,000,000 b. 0 c. $5,000,000 d. $7,500,000

Q: Excelsior Company's capital structure is as follows:Common stock ($2 par value, 2,000,000 shares)$ 4,000,000Contributed capital in excess of par16,000,000Retained earnings23,000,000Total common stockholders' equity$43,000,000The current market price of the firm's common stock is $30. If the firm declares a 10% stock dividend, determine the balance in the contributed capital in excess of par and retained earnings accounts.a. $22,000,000; $17,000,000b. $21,600,000; $17,000,000c. $21,600,000; $23,000,000d. $17,000,000; $22,000,000

Q: Nova earned $7.20 per share and maintains a stable payout ratio of 60 percent. Nova has 1,000,000 shares outstanding and a capital budget of $5 million. If Nova maintains a debt ratio of 0.50, what were the dividends per share? a. $4.32 b. $2.88 c. $2.20 d. cannot be computed with the information provided

Q: WPI Inc. has the following current equity accounts on its balance sheet:Common stock ($2.50 par, 500,000 shares)$ 1,250,000Contributed capital in excess of par$10,000,000Retained earnings$15,540,000Total$26,790,000If WPI earned $3.20 per share this year, what is the maximum dividend per share that WPI may pay if the state capital impairment provisions are limited to the par value and the contributed capital in excess of par accounts?a. $3.20b. $31.08c. $34.28d. $32.17

Q: The Altern Music Co. earns $4.25 per share, has 70,000 shares outstanding, and a capital budget of $200,000. If Altern Music raises all of its funds internally and follows the "passive residual policy," what are its annual dividends per share? a. $1.70 b. $1.39 c. $2.55 d. $0.94

Q: Cafe de Oro earns $4.25 per share and has a dividend payout ratio of 0.40. If Cafe de Oro has a capital budget of $200,000 and 70,000 shares outstanding, what are the annual dividends per share? a. $1.70 b. $1.39 c. $2.55 d. $0.94

Q: Cycle Out has 1,000,000 shares outstanding and currently has annual earnings per share of $5.20. If Cycle's stock price is $62.40, what would be the expected stock price if Cycle repurchases 50,000 shares? a. $65.52 b. $65.68 c. $75.72 d. Can not calculate with the information given.

Q: Badger Tool and Die Company has 100,000 shares outstanding and plans to pay $1.00 per share in dividends each quarter next year. Badger has a capital budget of $700,000 for next year and plans to maintain its present debt ratio of 0.30. If earnings are expected to be $7.20 per share, how much external equity must Badger raise? a. $210,000 b. $490,000 c. $170,000 d. none

Q: Haulsee Inc. paid a quarterly dividend of $0.12 and has announced both a 10% stock dividend and an increase in the quarterly dividend to $0.14. What is the effective rate of the dividend increase? a. 26.7% b. 18.3% c. 28.3% d. 15.7%

Q: Sorsi has declared a 15% stock dividend. If the stock was selling for $34 before the ex-dividend date, what should its price be on the ex-dividend date? a. $34.00 b. $29.57 c. $28.90 d. $30.91

Q: Heintz Corp. has just declared a 10% stock dividend. The company's pre-stock dividend common stockholders' equity was as follows:Common stock ($0.50 par, 10,000,000 shares)$ 5,000,000Contributed capital in excess of par$ 48,000,000Retained earnings$ 97,500,000Total common stockholders' equity$150,500,000If the common stock of Heintz was selling at $32 a share prior to the stock dividend, what will the retained earnings be after the stock dividend is distributed?a. $ 65,500,000b. $118,500,000c. $ 66,000,000d. $ 97,500,000

Q: Grabill Aerospace Company has just declared a 15% stock dividend. Immediately prior to the stock dividend, the stock was selling for $23 and had a P/E ratio of 14. Calculate the post-stock dividend price of Grabill's stock. a. $26.45 b. $20.00 c. $26.22 d. $20.18

Q: Last year, Toluca Engineering paid a $0.25 dividend per share each quarter. If Toluca announces both a 5 percent stock dividend and an increase in the quarterly dividend to $0.27, what is the effective rate of the dividend increase? a. 13.0% b. 8.0% c. 11.2% d. 13.4%

Q: Saturn Corporation has just declared a 25 percent stock dividend. The stock was selling for $18 before the stock dividend. The stock will pay a quarterly cash dividend of 8 cents per share after the stock dividend. If the 8-cent dividend is maintained over the next year what is the post-stock dividend yield? a. 2.13% b. 2.22% c. 0.56% d. 3.19%

Q: HiTec is growing fast and wishes to retain all its earnings to finance future growth. Instead of a cash dividend, HiTec declares a 10 percent stock dividend. If the price per share of HiTec stock is $30 before the ex-dividend date, what will be the price on the ex-dividend date? a. $27.27 b. $27.94 c. $33.00 d. $27.00

Q: The Earth Shoe Company, whose stock has a market value of $20, has the following common equity accounts on its balance sheet:Common stock ($1 par, 1,000,000 shares)$ 1,000,000Contributed capital in excess of par$14,000,000Retained earnings$52,000,000Total Common stockholders' equity$67,000,000If the firm declares a 5% stock dividend, what will be the "Retained earnings" figure after the dividend is paid?a. $1,000,000b. $51,000,000c. $14,950,000d. $1,050,000

Q: Last year, Quality's earnings per share were $2.34 and it paid a dividend of $1.10. What was Quality's dividend payout ratio? a. 21.2% b. 42.7% c. 47% d. 53%

Q: The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15 percent while the cost of new equity is 16 percent. If Wagner has $90 million of investment projects having expected returns greater than 16 percent, determine Wagner's dividend and investment policies. a. Pay out $20 million in dividends and raise $30 million externally b. Pay no dividends and invest only in the first $80 million in projects. c. Pay out $10 million in dividends and raise $20 million externally d. Pay no dividends and raise $10 million externally

Q: The Wagner Company tries to follow a pure "residual" dividend policy. Earnings and dividends last year were $100 million and $20 million respectively. Anticipated earnings for this year are $80 million. The company is financed completely with common equity. The required rate of return on retained earnings is 15 percent and the cost of new equity is 16 percent. If Wagner has $70 million of investment projects having expected returns greater than 15 percent, determine the total amount of dividends Wagner should pay. a. None b. $10 million c. $20 million in dividends and raise needed investment funds externally d. $80 million in dividends and raise needed investment funds externally

Q: The Percolator Company has the following capital structure:Common stock ($5 par, 250,000 shares)$1,250,000Contributed capital in excess of par$5,000,000Retained earnings$4,000,000The company declares a 10 percent stock dividend. The pre-stock dividend market price of the company's stock is $50. Determine the balance in the common stock account after the stock dividend.a. $1,250,000b. $1,375,000c. $125,000d. $2,500,000

Q: The Percolator Company has the following capital structure:Common stock ($5 par, 250,000 shares)$1,250,000Contributed capital in excess of par$5,000,000Retained earnings$4,000,000The company declares a 10 percent stock dividend. The pre-stock dividend market price of the company's stock is $50. Determine the balance in the retained earnings account after the stock dividend.a. $4,000,000b. $1,375,000c. $2,750,000d. $1,250,000

Q: All of the following are advantages of share repurchase as a dividend decision except: a. effectively converts dividend income into capital gains income b. provide firm with greater financial flexibility in timing the payment of returns to shareholders. c. all current shareholders are able to sell their shares at a higher price d. they represent a signal to investors that the company expects higher earnings in the future

Q: When a firm purchases its own stock in the open market, the repurchased shares become known as ____. a. treasury stock b. preferred stock c. option stock d. reinvestment stock

Q: A firm that employs a constant payout ratio dividend policy pays ____. a. a constant (fixed) dollar dividend b. out a certain percentage of each year's earnings c. a constant quarterly dividend d. none of the above is correct

Q: All of the following are arguments for the relevance of dividends except: a. existence of issuance costs b. reduction of agency costs c. protection against dilution d. risk aversion

Q: The theoretical post-stock dividend price is equal to the pre-stock dividend price ____. a. multiplied by 1 minus the percentage stock dividend rate b. multiplied by 1 plus the percentage stock dividend rate c. divided by 1 minus the percentage stock dividend rate d. divided by 1 plus the percentage stock dividend rate

Q: According to Miller and Modigliani it is ____ that really determines a firm's value. a. investment policy b. dividend policy c. both investment and dividend policy d. transaction and issuance cost

Q: Dividend policy can affect the value of the firm for which of the following reasons? a. personal taxes b. flotation costs c. shareholder transaction costs d. All of these answers are correct.

Q: As part of a share repurchase program by a company, a tender offer involves the ____. a. purchase of stock on the open market b. purchase of stock directly from its stockholders c. private negotiation of purchases from large institutions, such as insurance companies d. Dutch auction

Q: According to the ____ dividend policy, a firm that has more funds than it needs should pay a cash dividend to shareholders. a. constant payout ratio b. stable dollar c. passive residual d. year-end extras

Q: From an accounting standpoint, stock splits are accomplished by a. increasing the number of shares authorized b. increasing par value of existing shares c. reducing the par value of existing shares d. both a and c

Q: The dividend ____ states that investors will tend to be attracted to firms that have dividend policies consistent with the investor's objectives a. "clientele effect" b. "informational content" c. signal d. passive residual theory

Q: The fundamental question in dividend policy is a. the tax consideration b. the amount of growth the firm considers optimal c. not violating any restrictive covenants d. determining what portion of earnings will be paid out

Q: The net effect of a stock dividend is to a. increase the firm's total stockholders' equity b. increase the number of shares outstanding c. increase total dividends d. increase stock prices

Q: Under dividend reinvestment plans, shareholders can automatically a. reduce their taxable income b. increase their cash inflows c. use dividends to purchase additional shares d. increase their taxable income

Q: On the ex-dividend date, the a. seller of the stock is entitled to the dividend b. buyer has 4 business days to register his/her purchase c. buyer of the stock is entitled to the dividend d. corporation records all security owners

Q: A stock dividend will notaffect which of the following balance sheet items. a. total assets b. retained earnings c. contributed capital in excess of par d. common stock at par

Q: In order for a stock to qualify for inclusion on the "legal lists," a firm must a. register with the Securities Exchange Commission (SEC) b. have assets in excess of $500,000 c. have 10 continuous profitable quarters d. have a record of continuous and stable dividends

Q: All of the following are alternative dividend policies except a. constant payout b. stable dollar c. constant earnings d. passive residual

Q: A firm with stable earnings is usually more willing to a. retain more earnings b. have a higher dividend payout ratio c. have a sinking fund agreement d. seek aggressive growth

Q: Dividend payments reduce all of the following balance sheet items except a. cash b. fixed assets c. stockholder's equity d. retained earnings

Q: Restrictive covenants are contained in all of the following except a. preferred stock agreements b. lease contracts c. bond indentures d. agency restrictions

Q: A legal constraint that dividends must be paid out of a firm's present and past net earnings is known as the ____ restriction. a. net earnings b. net operating earnings c. initial investment d. earned capital

Q: The capital impairment restriction, a legal constraint on dividend payments, states that a. only the current year's earnings may be used for dividend payments b. dividends may not be paid out of stockholder's equity c. a firm's permanent capital cannot be used to make dividend payments d. a firm can liquidate its assets to pay dividends

Q: Firms with the ____ earnings growth tend to have the ____ dividend payout ratio. a. highest, highest b. highest, lowest c. lowest, lowest d. lowest, highest

Q: Rank in chronological sequence the payment date, ex-dividend date, declaration date, and record date. a. record date, declaration date, ex-dividend date, payment date b. declaration date, record date, ex-dividend date, payment date c. declaration date, record date, payment date, ex- dividend date d. declaration date, ex-dividend date, record date, payment date

Q: Firms carry out share repurchase agreements in a number of ways, including all of the following except a. buy from shareholders through a tender offer b. buy outstanding shares in the open market c. buy treasury shares d. negotiate a purchase privately from large holders, particularly institutions

Q: Which of the following is nota direct result of a stock dividend? a. the number of shares outstanding is increased b. the market price of each outstanding share is increased c. the amounts shown in the firm's capital accounts are redistributed d. none of these are correct.