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BUS 401 Principles Of Finance Week 4 Quiz

A finance quiz assessing fundamental financial principles from Week 4.

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    BUS 401 PRINCIPLES OF FINANCE WEEK 4 QUIZ 1. A plant may remain operating when sales are depressed _________ (Points :1) If the selling price per unit exceeds the variable cost per unit To help the local economy In an effort to cover at least some of the variable cost Unless variable costs are zero when production is zero 2. A corporation with very high growth prospects and many positive NPV projects to fund may want to increase its dividend based on _______ (Points :1) The tax bias against capital gains. The residual dividend theory T he information effect The very low agency costs of the corporation 3. Financing a portion of a firm’s assets with securities bearing a fixed rate of return in hopes of increasing the return to stockholders refers to ______ (Points : 1) Business risk Financial leverage Operating leverage Combined leverage 4. In perfect capital markets there ______ (Points : 1) Is no informational content assigned to a particular dividend policy. Are no income taxes Are no flotation costs All of the above 5. Low dividends may increase stock value according to the ______ (Points : 1) Bird in the hand theory Information effect Impact of agency costs Tax bias in favor of capital gains 6. A high degree of variability in a firm’s earnings before interest and taxes refers to _______ (Points : 1) Business risk Financial risk Financial leverage 7 The market value of a leveraged firm is equal to the market value of an unleveraged firm a. plus the present value of tax shields minus the present value of financial distress costs plus the present value of agency costs. b. minus the present value of tax shields minus the present value of financial distress costs minus the present value of agency costs. c. plus the present value of tax shields minus the present value of financial distress costs minus the present value of agency costs. d. plus the present value of tax shields plus the present value of financial distress costs plus the present value of agency costs. 8 All of the following may influence a firm’s dividend payment except: Investment opportunities.

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    Investor transaction costs Common stock par value Flotation costs 9 Which of the following will result from a stock repurchase? Earnings per share will rise Number of shares will increase Corporate cash is conserved Ownership is diluted. 10 Assume Harris, Inc. Has 10,000,000 common shares outstanding that have a par value of $2 per share. The stock is currently trading for $30 per share. The firm reported a net profit after - tax of $25,000,000. All else equal, what will happen to earnings per share if the company issues a 10 % stock dividend? Earnings per share will remain the same since a stock dividend does not create an expense. Earnings per share will increase because the dividend increases the value of the company. Earnings per share will decrease because the number of shares outstanding will go up. The impact cannot be determined without additional information on the new price per share. EPS before stock dividend = 25 m/10m = $2.5 per share EPS after stock dividend = 25 m /11m = $2.273 per share EPS will be diluted by =$0.227 per share 11 The final approval of a dividend payment comes from ______ The controller The president of the company The board of directors It is a joint decision requiring approval from all of the above. ! 12 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. 20% c. 50% d. 100% 13 Financial leverage could mean financing some of a firm’s assets with ___. a. Common stock b. Retained earnings c. Corporate bonds d. Sales revenue 14 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. 15 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

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