ACC 599 MIDTERM EXAM

Jul 25th, 2016
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Question 1 Dawn Alive reported the following for 2012. Ending market price $40.75 Earnings per share: Basic 2.50 Diluted 2.08 Dividends per share 1.10 The price/earnings ratio and dividend payout were: Answer 19.59 and 52.88% 16.30 and 52.88% 16.30 and 44.00% 19.59 and 44.00% 37.04 and 52.88% Question 2 The ratio percentage of earnings retained is the same as that termed: Answer dividend yield. dividend payout. this year's retained earnings to net income. return on common equity. book value. Question 3 What is the effect of the exercise of stock options? Answer They generate cash to the issuing firm and therefore increase profit per share. They are an expense at the time of exercise. This lowers net income. They increase debt and lower borrowing capacity but have no effect on profit. They increase the number of shares outstanding. They have no immediate effect on profitability Question 4 Interest expense creates magnification of earnings through financ

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ACC 599 MIDTERM EXAMQuestion 1Dawn Alive reported the following for 2012.Ending market price $40.75Earnings per share:Basic 2.50Diluted 2.08Dividends per share 1.10The price/earnings ratio and dividend payout were:Answer19.59 and 52.88%16.30 and 52.88%16.30 and 44.00%19.59 and 44.00%37.04 and 52.88%Question 2The ratio percentage of earnings retained is the same as that termed:Answerdividend yield.dividend payout.this year's retained earnings to net income.return on common equity.book value.Question 3What is the effect of the exercise of stock options?AnswerThey generate cash to the issuing firm and therefore increase profit per share.They are an expense at the time of exercise. This lowers net income.They increase debt and lower borrowing capacity but have no effect on profit.They increase the number of shares outstanding.They have no immediate effect on profitabilityQuestion 4Interest expense creates magnification of earnings through financial leverage because:Answerthe interest rate is variable.interest accompanies debt financing.the use of interest causes higher earnings.interest costs are cheaper than the required rate of return to equity owners.while earnings available to pay interest rise, earnings to residual owners rise faster.Question 5Book value per share may not approximate market value per share because:Answerthe book value is after tax.book values are based on replacement costs rather than market values.book value is

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