16. When an industry becomes more competitive A. Profit margins rise B. Economic profits start to diminish C. Accounting profits start to increase. D. There are generally fewer firms in the industry.

17. If the economy is expanding and revenues for firms are increasing, firms with higher operating leverage will experience A. Higher increases in profits than firms with lower operating leverage. B. Similar increases in profits as firms with lower operating leverage. C. Smaller increases in profits than firms with lower operating leverage. D. No change in profits.

18. In the last 12 months, ABC companys Board of Directors has approved dividends of $4 per share. Its Earnings per Share are $6 per share, and its stock price is currently $80 per share. ABCs Dividend payout ratio is __________ and its Dividend yield is _________________. A. 33%; 66%. B. 66%; 5%. C. 33%; 5%. D. 5%; 66%.

19. Two companies, A and B, are identical in all respects except company A has no debt in its capital structure while company B has a 50% debt-to-total capital ratio. Company B pays an interest rate of 5% on its long-term debt. Both companies have ROAs (returns on assets) of 7%. A. Company A will have an ROE of 5% while Company B will have an ROE of 6%. B. Company B will have a lower ROA than Company B. C. Company A will have a higher market risk premium beta than company B D. Company B will have a lower ROE than company A.

20. The three risk premium factors in the Fama-French three factor required return on equity model are A. Market risk premium, Quality, Momentum. B. Market risk premium, Size, Growth vs. Value. C. Size, Profitability, Leverage. D. Growth vs. Value, Quality, Size.