Question Details

effect of the exercise of stock options




1.	The ratio percentage of earnings retained is the same as that termed:
a.	dividend yield
b.	dividend payout
c.	this year's retained earnings to net income
d.	return on common equity
e.	book value

	2.	The earnings per share is computed for:
a.	common stock
b.	non-redeemable preferred
c.	redeemable preferred
d.	common stock and non-redeemable preferred stock
e.	common stock and fully diluted preferred stock

	3.	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

a.	$2.10       $2.00
b.	$1.05       $2.00
c.	$1.05       $2.00
d.	$2.10       $1.00
e.	none of the answers are correct

	4.	Interest expense creates magnification of earnings through financial leverage because:
a.	the interest rate is variable
b.	interest accompanies debt financing
c.	the use of interest causes higher earnings
d.	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

	5.	What is the effect of the exercise of stock options?
a.	They generate cash to the issuing firm and therefore increase profit per share.
b.	They are an expense at the time of exercise. This lowers net income.
c.	They increase debt and lower borrowing capacity but have no effect on profit.
d.	They increase the number of shares outstanding.
e.	They have no immediate effect on profitability.


	




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