BUS 401 Principles Of Finance Week 4 Quiz

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BUS 401 PRINCIPLES OF FINANCEWEEK 4 QUIZ1. A plant may remain operating when sales are depressed _________ (Points :1)If the selling price per unit exceeds the variable cost per unitTo help the local economyIn an effort to cover at least some of the variable costUnless variable costs are zero when production is zero2. A corporation with very high growth prospects and many positive NPV projects to fund may want toincrease its dividend based on _______ (Points :1)The tax bias against capital gains.The residual dividend theoryThe information effectThe very low agency costs of the corporation3. Financing a portion of a firm’s assets with securities bearing a fixed rate of return in hopes ofincreasing the return to stockholders refers to ______ (Points : 1)Business riskFinancial leverageOperating leverageCombined leverage4. In perfect capital markets there ______ (Points : 1)Is no informational content assigned to a particular dividend policy.Are no income taxesAre no flotation costsAll of the above5. Low dividends may increase stock value according to the ______ (Points : 1)Bird in the hand theoryInformation effectImpact of agency costsTax bias in favor of capital gains6. A high degree of variability in a firm’s earnings before interest and taxes refers to _______ (Points : 1)Business riskFinancial riskFinancial leverage7 The market value of a leveraged firm is equal to the market value of an unleveraged firma. plus the present value of tax shields minus the present value of financial distress costs plus thepresent value of agency costs.b. minus the present value of tax shields minus the present value offinancial distress costs minus thepresent value of agency costs.c. plus the present value of tax shields minus the present value of financial distress costs minus thepresent value of agency costs.d. plus the present value of tax shields plus the present value of financial distress costs plus thepresent 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 costsCommon stock par valueFlotation costs9 Which of the following will result from a stock repurchase?Earnings per share will riseNumber of shares will increaseCorporate cash is conservedOwnership is diluted.10 Assume Harris, Inc. Has 10,000,000 common shares outstanding that have a par value of $2 pershare. 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 % stockdividend?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 shareEPS after stock dividend= 25 m /11m = $2.273 per shareEPS will be diluted by =$0.227 per share11 The final approval of a dividend payment comes from ______The controllerThe president of the companyThe board of directorsIt 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 companyannounced 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 stockb. Retained earningsc. Corporate bondsd. Sales revenue14 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 ofthe above.15 The break even point in sales dollars is convenient if ___.a. The firm sells a large amount of one productb. The firm deals with more than one productc. The price per unit is very lowd. Depreciation expense is high

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