15 -20

15. Maximization of shareholder wealth is a concept in which A. increased earnings is of primary importance. B. profits are maximized on an annual basis. C. virtually all carnings are paid as dividends to common stockholders D. optimally increasing the long-term value of the firm is emphasized. 16. Insider trading occurs when A. someone has information not available to the public which they use to profit from trading in stocks. B. corporate officers buy stock in their company. C. lawyers, investment bankers, and others buy common stock in companies represented by their firms. D. any stock transaction that violates the Federal Trade Commissions restrictions. 17. Increasing interest expense will have what effect on Earnings Before Interest and Taxes (EBIT)? A. Increase it B. Decrease it C. It will have no effect. D. There is not enough information to tell. 18. Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares outstanding on December 31, 2015. On January 1, 2016, the firm issued 40,000 new shares. The company took the proceeds from these new shares as well as other operating improvements and earned $958,500 earnings after taxes in 2016. Earnings per share for the year 2016 were A. $2.14. B. $2.68. C. $2.82. D. None of the options. 19. A firm with eamings per share of $3 and a price-earnings (P/E) ratio of 18 will have a stock market price of A. $72.00. B. $15.00. C. $54.00. D. $3.00 20. Earnings per share is A. operating profit divided by number of shares outstanding B. net income divided by number of shares outstanding C. net income divided by stockholders' equity D. net income minus preferred dividends divided by number of shares outstanding