chp 11 accounting

Firm A's common stock has a par value per share of $1, market value per share of $90, earnings per share of $5, dividends per share of $2, and a book value per share of $60. What is Firm A's dividend yield (rounded to one decimal)? Multiple choice question.

$2 / $90 = 2.2%

Total liabilities were $650,000 at the beginning of the year and $600,000 at the end of the year. Stockholders' equity was $300,000 at the beginning of the year and $400,000 at the end of the year. What was the debt/equity ratio at the end of the year (rounded to one decimal)?

$600,000 / $400,000 = 150%

Which statements regarding financial leverage are true?

It adds risk to the operation of the firm. It can be arranged via debt and preferred stock, because of their fixed interest cost (or dividend rate). It can lead to bankruptcy if the firm cannot generate enough cash to make payments on the principal and interest of its loans.

Identify the correct statements about vertical common size financial statement analysis. Multiple select question.

Each item on the income statement is expressed as a percentage of sales. Total current assets are expressed as a percentage of total assets. The balance sheet and income statement are expressed in a percentage format.

Why is operating income frequently substituted for net income in the calculation of ROI and ROE?

Operating income excludes interest expense, which varies from firm to firm based on their capital structure decisions. Operating income is a more direct measure of the results of a firm's activities.

The LIFO reserve: Multiple choice question. may be disclosed in the notes to the financial statements. must be reported as an inventory adjustment in the balance sheet. may be reported as a cost of goods sold adjustment in the income statement. must be reported as a diluted earnings per share adjustment in the income statement.

may be disclosed in the notes to the financial statements.

Because firms within a given industry may vary considerably over time in terms of their Blank______, it is difficult to develop reliable rules of thumb for the evaluation of ratio results.

relative scale of operations cost and capital structures life cycle stage of development

How do debt and preferred stock provide financial leverage?

They have a fixed interest cost (or dividend rate). The interest on debt can be deducted as an expense, lowering income taxes.

Which of the following statements are true regarding the price/earning (P/E) ratio?

The P/E ratio is one of the most important measures used by investors to evaluate the market price of a firm's common stock. Diluted earnings per share is usually the denominator of the P/E calculation. Analysts sometimes use expected future earnings per share and the current market price in the calculation to evaluate the prospects for changes in the stock's market price. The P/E ratio is sometimes referred to as earnings multiple. The P/E ratio is a measure of the relative expensiveness of a company's common stock. P/E ratios are shown in the stock listing tables of The Wall Street Journal. An above-average P/E ratio indicates that the common stock price is high relative to the firm's current earnings. P/E ratios are significantly influenced by the company's reported earnings. A low P/E ratio for a well-established company may be an indicator that the company's stock is undervalued. Diluted earnings per share is usually the denominator of the P/E calculation. The P/E ratio is one of the most important measures used by investors to evaluate the market price of a firm's common stock. Analysts sometimes use expected future earnings per share and the current market price in the calculation to evaluate the prospects for changes in the stock's market price. A high P/E ratio usually means that investors expect the firm to have strong future earnings and dividend growth. Firms with high P/E ratios generally have strong investor confidence. Low P/E ratios usually indicate poor earnings expectations. Low P/E ratios usually indicate poor earnings expectations. The P/E ratio should not be the sole, or even principal, consideration in an investment decision. An above-average P/E ratio often indicates that investors anticipate relatively favorable future developments, such as increased earnings per share or higher dividends per share.

A company desiring to increase its total asset turnover could do so by using:

an accelerated depreciation method and the LIFO cost flow assumption.

Because firms within a given industry may vary considerably over time in terms of their Blank______, it is difficult to develop reliable rules of thumb for the evaluation of ratio results.

market segmentation strategies relative scale of operations selected accounting methods