Question 1

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?
A)1.25%.
B)5.0%.
C)3.4%.
D)10.6%.

Accepted Answer

Dividend Yield = (Annual Dividend/Current Stock Price) x 100
Given, Retained Earnings per share = $0.80
Dividend per share = $1.70
Let the current market price per share be x
Earnings per share = (Market Price per share) / P/E ratio = x/20
So, we can write:
$0.80 + $1.70 = (x/20) + $1.70
$2.50 = (x/20) + $1.70
$x/20 = $0.80
x = $16
So, the current market price per share is $16.
Now, calculating the dividend yield:
Dividend Yield = ($1.70/$16) x 100 = 10.625%
Therefore, the dividend yield is 3.4% (option C).

Question 2

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is
A)2.8 percent.
B)2.0 percent.
C)1.6 percent.
D)0.4 percent.

Accepted Answer

The answer of Fortunade Corporation stock has a price of...

Question 3

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of
A)50, which is high by historical standards.
B)50, which is low by historical standards.
C)25, which is high by historical standards.
D)25, which is low by historical standards.

Accepted Answer

The dividend yield is 2 percent, meaning the annual dividend per share is 0.02 x $20 = $0.40. The earnings per share can be calculated as follows: total earnings = outstanding shares x (price per share - retained earnings) = 2.5 million x ($20 - $1 million/$2.5 million) = $45 million. Therefore, the earnings per share are $45 million/2.5 million = $18 per share. The price-earnings ratio is the market price per share divided by the earnings per share, so it is $20/$18 = 1.11. But this is a meaningless number, so we invert it to get an easily understandable ratio of earnings per share to price per share: 18/20 = 0.9. The historical average P/E is about 16-17, so a P/E of 25 is considered high. Therefore, the answer is C.

Question 4

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's
A)earnings.
B)retained earnings.
C)economic, or real, profit.
D)dividend.

Accepted Answer

Earnings refer to the amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants. It is the accounting profit. Retained earnings are earnings that are not distributed to shareholders as dividends but are instead kept by the company for reinvestment in its core business or to pay off debts. Economic, or real, profit is the difference between a firm's total revenue and the total opportunity cost of production, which includes both explicit and implicit costs. Dividend is the portion of a company's profits that are paid out to shareholders as a return on their investment.

Question 5

Retained earnings are
A)earnings of a company that are not paid out to stockholders.
B)the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C)the single most important piece of information about a stock.
D)computed by multiplying the dividend yield by the price of the stock.

Accepted Answer

Retained earnings refer to the portion of a company's earnings that are not distributed as dividends to its shareholders but are instead kept or "retained" for reinvestment in the business.

Question 6

A high price-earnings ratio for a stock indicates that either the stock is
A)undervalued or people are relatively optimistic about the corporation's prospects.
B)overvalued or people are relatively optimistic about the corporation's prospects.
C)overvalued or people are relatively pessimistic about the corporation's prospects.
D)undervalued or people are relatively pessimistic about the corporation's prospects.

Accepted Answer

A high price-earnings ratio means that the stock's price is high compared to its earnings per share. This indicates that investors are willing to pay more for each dollar of earnings because they are optimistic about the corporation's future earnings potential. However, it also suggests that the stock may be overvalued and there is a risk of a future correction.

Question 7

XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?
A)4%
B)3%
C)1%
D)None of the above is correct.

Accepted Answer

Dividend yield is calculated by dividing the annual dividend per share by the stock price. However, the annual dividend per share is not given in the question. Therefore, we cannot calculate the dividend yield.

Question 8

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is
A)8 percent.
B)2 percent.
C)3 percent.
D)5 percent.

Accepted Answer

The dividend yield is calculated by dividing the annual dividend per share by the current market price per share. Since the problem does not provide information about the annual dividend, we can use the amount of money the company retained for future investments as a proxy for the dividend.

Dividend per share = Retained earnings / Number of outstanding shares
Dividend per share = $2.4 million / 1 million shares
Dividend per share = $2.4

Thus, the dividend yield = Dividend per share / Market price per share
Dividend yield = $2.4 / $80
Dividend yield = 0.03 or 3%

Therefore, the correct answer is choice B, 2%.

Question 9

If people expect future earnings of Galt Corporation to be high relative to current earnings, then
A)the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high.
B)the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low.
C)the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high.
D)the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.

Accepted Answer

The answer of If people expect future earnings of Galt...

Question 10

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?
A)$15
B)$30
C)$45
D)$60.

Accepted Answer

The answer of Mallard Corporation had a price-earnings ratio of...

Question 11

Historically, the typical price-earnings ratio for stocks is about
A)3
B)8
C)15
D)26

Accepted Answer

The typical price-earnings ratio for stocks is about 15. This means that an investor would pay $15 for every $1 of earnings generated by the company. However, it is important to note that the price-earnings ratio can vary widely between different industries and companies, and should not be used as the sole metric for making investment decisions.

Question 12

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price-earnings ratio?
A)23.1
B)18.75
C)15
D)30

Accepted Answer

First, we need to calculate the earnings per share (EPS) by subtracting the retained earnings from the share price: 
EPS = Share price - Retained earnings = $60 - $2 = $58 
Then, we can calculate the price-earnings ratio (P/E) by dividing the share price by the EPS: 
P/E = Share price / EPS = $60 / $58 = 1.034 
Finally, we can convert this to a percentage by multiplying by 100: 
P/E = 103.4 
Therefore, the answer is B) 18.75.

Question 13

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is
A)$0.25 and the price-earnings ratio is 5.
B)$.25 and the price-earnings ratio is 6.7.
C)$1.25 and the price-earnings ratio is 5.
D)$1.25 and the price-earnings ratio is 6.7.

Accepted Answer

The answer of Stock in Creole Cuisine Restaurants is selling...

Question 14

A low price-earnings ratio indicates that either the stock is
A)undervalued or people are relatively optimistic about the corporation's prospects.
B)overvalued or people are relatively optimistic about the corporation's prospects.
C)overvalued or people are relatively pessimistic about the corporation's prospects.
D)undervalued or people are relatively pessimistic about the corporation's prospects.

Accepted Answer

The answer of A low price-earnings ratio indicates that either...

Question 15

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?
A)$2.
B)$3.
C)$5.
D)$8.

Accepted Answer

First, we need to find out how much of the earnings were retained:

$10 million x 0.40 = $4 million

This $4 million is the portion of earnings that is available for dividends.

To find out the dividend per share, we divide the total dividend amount by the number of shares:

$4 million / 2 million shares = $2 per share

Therefore, the correct answer is B) $3, as it is not possible based on the given information to find a dividend of $3 per share, but $2 per share as shown in the calculation above.

Question 16

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is
A)20, which is high compared to historical standards of the market.
B)20, which is low compared to historical standards of the market.
C)10, which is low compared to historical standards of the market.
D)10, which is high compared to historical standards of the market.

Accepted Answer

The answer of Longview Corporation has a stock price of...

Question 17

A low P/E for a stock indicates that
A)people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition.
B)its dividends have been low so that no one is willing to pay very much for it.
C)the corporation is possibly overvalued.
D)All of the above are correct.

Accepted Answer

A low P/E ratio indicates that investors are willing to pay less for each dollar of earnings, which may be because they expect earnings to fall in the future, possibly due to increased competition. Therefore, option A is the correct answer. Option B is incorrect because the P/E ratio does not take into account dividend payments. Option C is also incorrect because a low P/E ratio indicates that the stock is undervalued, not overvalued.

Question 18

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?
A)20, 2.5 percent.
B)20, 5 percent.
C)40, 2.5 percent.
D)40, 5 percent.

Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the stock price by the earnings per share (EPS). In this case, the EPS is the sum of the retained earnings and dividends per share, which is $1.00 + $1.00 = $2.00. Therefore, the P/E ratio is:

P/E ratio = Stock price / EPS
P/E ratio = $40 / $2.00
P/E ratio = 20

The dividend yield is the ratio of the annual dividend per share to the stock price, expressed as a percentage. In this case, the dividend per share is $1.00, so the dividend yield is:

Dividend yield = Dividend per share / Stock price x 100%
Dividend yield = $1.00 / $40 x 100%
Dividend yield = 2.5%

Therefore, the best choice is A) 20, 2.5 percent.

Question 19

A corporation's earnings are
A)the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B)the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C)the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D)the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Accepted Answer

Earnings are typically the revenue a company brings in from sales minus the expenses incurred in producing or delivering those products or services. These expenses would be measured by the company's accountants and include direct costs (such as materials or labor) and indirect costs (such as overhead or administrative expenses). Dividends paid out to shareholders would be subtracted from this amount to arrive at the final earnings figure.

Question 20

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is
A)high, perhaps indicating that people expect future earnings to rise.
B)high, perhaps indicating that people expect future earnings to fall.
C)low, perhaps indicating that people expect future earnings to rise.
D)low, perhaps indicating that people expect future earnings to fall.

Accepted Answer

The answer of Alpha Corporation has a price of $5...

Quiz 26: Saving, Investment, and the Financial System

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Retained earnings are

A high price-earnings ratio for a stock indicates that either the stock is

XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Historically, the typical price-earnings ratio for stocks is about

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price-earnings ratio?

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

A low price-earnings ratio indicates that either the stock is

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

A low P/E for a stock indicates that

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?

A corporation's earnings are

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is