1. a. b. C. d. e. MULTIPLE CHOICE The ratio percentage of earnings retained is the same as that termed: dividend yield dividend payout 2. a. b. C. d. e. UIBS C. d. e. 4. a. b. C. d. e. Class Work 1 Mergers and Acquisitions Spring QUARTER this year's retained earnings to net income return on common equity book value The earnings per share is computed for: common stock 3. Dawn Alive reported the following for 2010. Ending market price $40.75 Earnings per share: Basic 2.50 Diluted 2.08 Dividends per share United International Business Schools non-redeemable preferred redeemable preferred common stock and non-redeemable preferred stock common stock and fully diluted preferred stock 1.10 The price/earnings ratio and dividend payout were: a. 19.59 and 52.88% b. 16.30 and 52.88% 16.30 and 44.00% 19.59 and 44.00% answer 40.75/2.08 and 1.10/2.08 37.04 and 52.88% The best dividend payout ratio: approximates 50% continues at the same level as was historically paid is similar to the industry average is higher than that of competitors does not follow any rule of thumb for dividend payout Prof. Samer Ajour 5. a. b. C. d. firm. e. 6. Which of the following ratios usually reflects investors opinions of the future prospects for the firm? dividend yield a. b. C. d. e. 7. Which of the following is not a true statement regarding stock options? They may cause dilution of earnings per share. They generally allow the purchase of common stock at favorable terms. They involve a compensation expense. Exercise improves the short-term liquidity and debt position of the issuing The potential dilution can be disregarded in financial analysis. book value per share price/earnings ratio earnings per share dividend payout Smith reported the following for 2010. Beginning market price $20.00 Average market price 24.00 Ending market price 26.00 Earnings per share: Basic Diluted Cash dividends per share a. d. 15.00 and 62.50% e. 15.00 and 60.00% The price earnings ratio and dividend payout were: a. 16.25 and 62.50%. ans 26/1.6 and 1/1.6 b. 16.25 and 65.00% c. 17.00 and 62.50% 1.80 1.60 1.00 8. In 2010, ABC Company reported earnings per share of $2.00 for 10,000 shares. In 2011, there was a 2-for-1 stock split, for which 2011 earnings per share were reported at $2.10. The appropriate earnings per share presentation for a 2-year comparative analysis would be: 2011 2010 $2.10 $2.00 Prof. Samer Ajour Page 2 of 3 b. C. d. e. a. b. $1.05 $1.05 9. Interest expense creates magnification of earnings through financial leverage because: the 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 e. while earnings available to pay interest rise, earnings to residual owners rise faster C. d. $2.00 $2.00 $2.10 $1.00 none of the answers are correct Problem: 10. Using the following information for Cedric Inc. calculate earnings per share, the price-to earnings ratio, dividend payout and dividend yield for the firm. Analyze these market ratios. Net income Shares of common stock outstanding Dividends per share Market price per share 2012 $31 million 24 million $0.55 $12 2011 $30 million 22 million $ 0.50 $16