Answer multiple choice ? a. In 2007 and 2008, Zoret Company reported earnings pe

Question

Answer multiple choice ?

a. In 2007 and 2008, Zoret Company reported earnings per share of $0.80 and $1.00, respectively. In 2009, Zoret Company declared a 4-for-1 stock split. For the year 2009, Zoret Companyreported earnings of $0.30 per share. The appropriate earnings per share presentation for a three year comparative analysis that includes 2007, 2008, and 2009 would be

b. The degree of financial leverage for Zorro Company was 1.50 when EBIT was reported at
$1,000,000. If EBIT goes to $2,000,000, the accompanying change in net income will be
1. $2,500,000.
2. $3,000,000.
3. $2,000,000.
4. $1,500,000.
5. $1,000,000.

c. In 2010, Zello Company declared a 10% stock dividend. In 2009, earnings per share was $1.00.
When the 2009 earnings per share is disclosed in the 2010 annual report, it will be disclosed at
1. $1.00.
2. $1.10.
3. $1.20.
4. $0.91.
5. $0.81.

d. Which of the following ratios usually reflects investor’s opinions of the future prospects for the firm?
1. Dividend yield
2. Book value per share
3. Price/earnings ratio
4. Earnings per share
5. Dividend payout

e. Which of the following ratios gives a perspective on risk in the capital structure?
1. Book value per share
2. Dividend yield
3. Dividend payout
4. Degree of financial leverage
5. Price/earnings ratio

f. The earnings per share ratio is computed for
1. Convertible bonds.
2. Redeemable preferred stock.
3. Common stock.
4. Nonredeemable preferred stock.
5. None of the above.

g. Increasing financial leverage can be a risky strategy from the viewpoint of stockholders of companies
having
1. Steady and high profits.
2. Low and falling profits.
3. Relatively high and increasing profits.
4. A low debt/equity ratio and relatively high profits.
5. None of the above.

h. A firm has a degree of financial leverage of 1.3. If earnings before interest and tax increase by
10%, then net income
1. Will increase by 13.0%.
2. Will increase by 13.

3. Will decrease by 13.0%.
4. Will decrease by 13.
5. None of the above.

i. The ratio that represents dividends per common share in relation to market price per common
share is
1. Dividend payout.
2. Dividend yield.
3. Price/earnings.
4. Book value per share.
5. Percentage of earnings retained.

j. Book value per share may not approximate market value per share because
1. Investments may have a market value substantially above the original cost.
2. Land may have substantially increased in value.
3. Market value reflects future potential earning power.
4. The firm owns patents that have substantial value.
5. All of the above.

2009 2008 2007 1 $0.30 $0.25 $0.80 2 $0.30 $4.00 $3.20 3 $0.30 $0.25 $0.20 4 $1.20 $0.25 $0.20 5 $1.20 $4.00 $3.20

Explanation / Answer

Question Answer a. No.3 2007 2008 2009.0 Income 0.8 1 120.0 Stock after split 4 4 4.0 EPS 0.2 0.25 30 b. No.4 Change in EBT=(2,000,000-1,000,000)*1.5 =1,500,000 c. No.4 No of Share 1 Stock Dividend 0.1 No of share after dividend 1.1 in 2010 it will be 1/1.1 = 0.90909 d. No.1 dividend yield tell the current earnings per share. e. No.4 f. No.3 g. No.5 Financial Leverage = EBT/EBIT. With the increase in EBT, ratio increases. Increasing EBT means company earning good profit h. No.1 DFL = change in EBT/Change in EBIT = 1.3 Now Changein EBT = 1.3 x Change in EBIT = 1.3 x 10% =13% i. No2. j. No.5 Market value of the fixed assets may not be same as the price reported into the financial statement.

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