Which of the following is the best conclusion, given only the following informat

Question

Which of the following is the best conclusion, given only the following information: ZYX Corporation's earnings after taxes have declined by 3.13% from the year earlier. During the past three months, ZYX purchased from investors (retired) 7.5% of the corporation's outstanding preferred stock shares, which pay dividends at 5% of par: A. ZYX Corporation's purchase of preferred stock had no effect on the firm's asset balance. B. ZYX Corporation's preferred stock purchase should enhance earnings after taxes next year because it will earn 5% dividend income from its new preferred stock holdings. C. ZYX Corporation's purchase of preferred stock improved its capacity to pay preferred stock dividends. D. ZYX Corporation's net income decline is largely attributable to the expense it incurred to purchase its preferred stock.

Explanation / Answer

The best conclusion :

C. ZYX Corporation's purchase of preferred stock improved its capacity to pay preferred stock dividends. Justification: Beacause henceforth ZYX Corporation need to pay the remaining 92.50% preferred stock shares hlers need to be paid, outof ensuing EAT. As such its capacity to pay preferred stock dividends has been improved.

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