Question 1

Queen City Sausage stock is selling at $40 per share. It has retained earnings of $2.00 per share, and dividends of $0.50 per share. What is the price-earnings ratio?

Accepted Answer

The price-earnings ratio is calculated by dividing the stock price by the earnings per share. In this case, the stock price is $40 and the earnings per share are $2.00, so the price-earnings ratio is $40/$2.00 = 20.

Question 2

What does a high price-earnings ratio indicate?

Accepted Answer

A high price-earnings ratio indicates that the stock's price is high relative to its earnings per share. This could mean that investors are willing to pay more for the stock because they are optimistic about the corporation's future earnings potential. However, it could also mean that the stock is overvalued and due for a correction. Therefore, the best answer is B.

Question 3

Buskins Corporation has issued 2 million shares. Its earnings were $10 million of which it retained $6 million. What was the dividend per share?

Accepted Answer

The total dividends paid out is $4 million ($10 million earnings - $6 million retained). With 2 million shares, the dividend per share is $4 million / 2 million shares = $2 per share.

Question 4

Which of the following best defines retained earnings?

Accepted Answer

Retained earnings are the portion of a company's profits that are not distributed as dividends to shareholders, but instead are kept by the company for various purposes such as reinvestment back into the company, debt reduction or savings for future opportunities.

Question 5

Which of the following terms refers to the profits paid out to shareholders?

Accepted Answer

Dividends refer to the profits paid out to shareholders. Retained earnings refer to the portion of profits that a company keeps for reinvestment, while interest refers to the cost of borrowing money and shares refer to the ownership units in a company.

Question 6

PacknCamp Corporation has a price of $50, has issued 2 000 000 shares, has increased its cumulated retained earnings by $2 million, and has a dividend yield of 2 percent. What is the price-earnings ratio of PacknCamp?

Accepted Answer

The answer of PacknCamp Corporation has a price of $50,...

Question 7

Stock in Synergistic Corporation is selling at $25 per share. It had earnings of $5 a share and a dividend yield of 5 percent. What is the dividend?

Accepted Answer

First, we need to calculate the dividend per share:
Dividend per share = Dividend yield x Stock price
Dividend per share = 5% x $25
Dividend per share = $1.25

Therefore, the dividend per share is $1.25. Option C is the correct answer.

Question 8

Table 8-1
 
-Refer to Table 8-1. In dollar terms, which company paid the highest dividend per share?

Accepted Answer

Hershey paid a dividend of $2.54 per share, which is the highest in the table.

Question 9

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. Which of the following best describes this P/E ratio?

Accepted Answer

The answer of Suppose Sarah Lee Corporation stock has a...

Question 10

Which of the following is the single most important piece of information about a stock?

Accepted Answer

The price of a stock is the single most important piece of information as it allows investors to determine the value of the company's shares and make informed decisions about buying or selling. Other factors, such as the price-earnings ratio, dividend, and volume, may also be important, but they are secondary to the actual price of the stock.

Question 11

What is the "volume" as reported in stock tables?

Accepted Answer

In stock tables, the "volume" refers to the total number of shares that were traded during a given period of time, typically a day. It is typically reported in terms of the number of shares traded, and not a calculation based on price or shares outstanding.

Question 12

How many stock prices are used to compute the Dow Jones Industrial Average?

Accepted Answer

The Dow Jones Industrial Average is calculated based on the stock prices of 30 major U.S. corporations. This includes companies such as Apple, Coca-Cola, and Goldman Sachs.

Question 13

What has the typical price-earnings ratio been historically?

Accepted Answer

The typical price-earnings ratio (P/E ratio) historically has been around 15. This means that investors were willing to pay $15 for every $1 of earnings that a company produced. This is considered a moderate level of valuation. However, it is important to note that different industries and companies may have different P/E ratios based on their growth prospects, earnings stability, and risk profile.

Question 14

Which of the following terms refers to the profits NOT paid out to shareholders?

Accepted Answer

Retained earnings refer to the portion of profits that a company decides to keep rather than distribute to shareholders as dividends.

Question 15

Which of the following best defines a corporation's earnings?

Accepted Answer

A corporation's earnings refer to the amount of revenue it receives for the sale of its products, minus its costs of production, as measured by its accountants. This definition excludes any dividends paid out to shareholders, which are considered separate from earnings. Option A includes dividends paid out, which is incorrect. Option B considers economists to measure costs, which is not the norm in accounting. Option D includes economists but not accountants, which is also not accurate.

Question 16

Table 8-1
 
-Refer to Table 8-1. What were Hershey's earnings per share?

Accepted Answer

The correct earnings per share for Hershey's, as indicated in Table 8-1, is $1.64.

Question 17

Which of the following terms refers to the amount of revenue a firm receives for the sale of its products, minus its costs of production, as measured by its accountants?

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.

Answer: B, D 
 Retained earnings refer to a company's profits that are kept or reinvested in the business rather than being paid out to shareholders as dividends. Dividends refer to the payment made by a company to its shareholders, usually as a portion of the company's earnings. However, neither of these terms specifically refers to the amount of revenue a firm receives for the sale of its products, minus its costs of production, as measured by its accountants.

Question 18

Mount Adams Jazz Corporation has a price of $50, a dividend of $0.60, and retained earnings of $1.00 per share. What is the dividend yield on this stock?

Accepted Answer

The answer of Mount Adams Jazz Corporation has a price...

Question 19

What is a dividend yield?

Accepted Answer

Dividend yield is the measure of how much a company pays out in dividends each year relative to its stock price. It is calculated by dividing the annual dividend per share by the stock's price per share and expressed as a percentage. Therefore, A is the correct choice.

Question 20

What does a low P/E for a stock indicate?

Accepted Answer

A low P/E ratio can indicate that investors expect future earnings to decline, possibly due to increased competition or other challenges.

Quiz 8: Saving, Investment, and the Financial System